Consent Solicitation

What Is a Consent Solicitation?

A consent solicitation is an interaction by which a security issuer proposes changes to the material terms of the security agreement. These changes are for investors, who hold a stake in the security. Given that mutual consent is typically required for such critical changes, the consent solicitation is normally a request for permission to roll out an improvement for the benefit of the stakeholder.

Consent solicitations ordinarily must be recorded with the U.S. Securities and Exchange Commission (SEC). While both the SEC and states control consent solicitations, states frequently play a more important part.

Consent solicitations can likewise allude to any proposed changes that a corporation's board wishes to institute outside of a company's shareholder meeting, seeking written consent from its shareholders to do as such.

Figuring out a Consent Solicitation

Commonly, a corporation settles on important company choices at its annual shareholder meeting, like settling on its board of directors. Notwithstanding, oftentimes decisions should be made outside of the annual shareholder meeting, and this is the point at which a consent solicitation becomes an integral factor.

A corporation can make a proposal and look for consent from its shareholders to sanction the proposed change. As a general rule, a consent solicitation can apply to any corporate action.

A consent solicitation typically states a specific date by which stakeholders must answer the issuer's request to roll out a material improvement to the security agreement. The security issuer might establish changes assuming the required number or percentage of stakeholders consent to the change(s). If not exactly the required percentage of stakeholders consent to the changes, the measure falls flat, and the changes can't be instituted.

Consent Solicitation and Activist Investors

While most major corporate changes happen at annual shareholder meetings; on occasion activist investors may roll out major improvements privately, at a separate point. Following a written consent solicitation for the benefit of one investor, or a group of investors, to the other shareholders, activists will inform company management of the decision to roll out the improvement.

In the majority of cases, this is in regards to a change in company directors or executives, despite the fact that they can happen for different reasons. However most U.S. companies preclude consent solicitations by means of their Articles of Incorporation or local laws, a minority actually acknowledge changes here. The figure is roughly 70% of S&P 500 companies limiting or disallowing consent solicitations starting around 2014.

A large justification for companies restricting consent solicitations is to keep activist shareholders from assuming control over a company. It acts as a form of defense against any hostile takeovers.

As verified above, albeit both the SEC and states can direct consent solicitations, states can have more power in these circumstances. Here, states are able to decide if and how a company's shareholders can request written consent. Simultaneously, the SEC supervises and manages the specific course of solicitation.

Illustration of a Consent Solicitation

A common illustration of consent solicitation happens inside the bond market. In the event that the original terms of indenture are at this point not to the greatest advantage of the issuer and bondholders (influencing the feasibility of the bond issue) the issuer might approach the bondholders through a consent solicitation statement. Bondholders, who consent to the changes, may receive a consent payment.

For instance, a corporation that issued bonds to investors might accept that a change in the interest rate or the maturity of the bond might demonstrate beneficial to the stakeholders given the latest economic gauges. In this case, the corporation would issue a consent solicitation to all bondholders, seeking permission to change the terms it accepts would be beneficial to all gatherings included.

Features

• A consent solicitation is a cycle by which a security issuer proposes changes to the terms of the security agreement.
• Any consent solicitations must be recorded with the Securities and Exchange Commission (SEC).
• The changes are for investors that hold a stake in the security, subsequently, mutual consent is generally required for such changes to occur.
• The majority of U.S. companies forbid or limit consent solicitations in their Articles of Incorporation.
• Consent solicitations likewise allude to any corporate changes a company's board wishes to order outside of the company annual meeting, seeking shareholder consent to do as such.