The scope of the dispute-settlement clause contained in the issuance agreement as an investor protection mechanism in the Ecuadorian securities market

Abstract

Prior to making any investment decision through the securities market, investors examine the existence of adequate investor protection mechanisms when potentially faced with non-performance by debtors.  Ecuadorian securities law centers the efforts concerning the protection of bondholder rights on the bondholders’ representative and the bondholder’s meeting, tasked with the exercise of judicial actions and decision-making initiatives that are binding on all investors, accordingly. Bondholders may also access a collective dispute resolution procedure previously agreed on by their representative and the issuer on the issuance agreement, which may be judicial or arbitral in nature.  In this sense, the restriction establishing that only the bondholders’ representative may file a collective judicial claim on their behalf, whose scope is limited to the conditions previously established on the issuance agreement, provides the Ecuadorian securities legislation with a particular approach to the collective defense of bondholders’ interests. This paper aims to examine the scope of dispute resolution regulations as an adequate mechanism for the individual protection of bondholders’ rights, in view of the legislation of other countries in the region.