Contractual Rights and Risks: Beneficial Owner Standing and Force Majeure

By: Jeffrey M. Haber 

What happens when the beneficial owners of notes seek to enforce them even though the governing indenture designates someone else as the registered “Holder”? And can an issuer avoid liability for nonpayment based on an intervening foreign law when its contract contains no force majeure provision allocating the risk of such a change in law? Those were the principal questions before the Court in BFAM Asian Opportunities Master Fund, LP v. Glory Health Indus. Ltd., 2026 N.Y. Slip Op. 05997 (1st Dept. Oct. 15, 2026), a dispute arising from approximately $335 million in senior notes issued by the Chinese real estate developer Glory Health Industry Limited.

Although the parties did not dispute that the notes were in default, they sharply disputed whether the beneficial owners had standing to sue and whether Chinese laws restricting Glory Health’s ability to make payments excused its performance. The Appellate Division, First Department held that the plaintiffs established standing by following the procedures governing their beneficial interests and obtaining authorization to sue through Euroclear. It also rejected defendants’ impossibility defense, reasoning that the indenture contained no force majeure clause addressing the risk that Chinese law might change in a manner conflicting with the parties’ contractual obligations. A force majeure clause generally allocates the risk that extraordinary events beyond the parties’ control will prevent performance under the contract and identifies the circumstances under which nonperformance may be excused.

BFAM Asian Opportunities Master Fund, LP v. Glory Health Indus. Ltd.

In February 2022, Glory Health Industry Limited, a Chinese real-estate developer, issued approximately $335 million in 14.25% senior notes (“Notes”) pursuant to an indenture dated February 23, 2022, which was later amended by a First Supplemental Indenture dated April 25, 2022 (“Indenture”). The Notes were issued through a single Global Note, were governed by New York law, and matured on August 23, 2024. Several Glory affiliates guaranteed Glory Health’s payment obligations under the Notes.

The Global Note was registered in the name of a common depositary, or its nominee, for the accounts of Euroclear Bank SA/NV and Clearstream Banking S.A. Under the Indenture, the person in whose name a note was registered constituted its “Holder.” The Indenture separately addressed investors holding beneficial or book entry interests through the clearing system. Section 2.06 provided that, while the notes remained in global form, the Common Depositary or its nominee would be treated as the sole Holder and beneficial owners would not themselves be considered “Holders.” Instead, participants were required to rely on Euroclear’s or Clearstream’s procedures, and indirect participants were required to rely on the procedures of the participants through which they owned their interests, to transfer their interests or exercise rights belonging to Holders.

Beginning in 2022, Glory failed to make payments required under the Notes. Those defaults included mandatory redemption payments and scheduled interest payments. The Indenture provided that, upon a qualifying event of default, the Trustee or Holders of at least 25% of the outstanding principal amount could accelerate the Notes. It also separately addressed enforcement of payment obligations following default.

The plaintiffs acquired beneficial interests in the Notes in approximately February and March 2023 and ultimately held 26.54% of the outstanding Notes, representing approximately $88.8 million in principal. They held those interests through prime brokers participating in Euroclear rather than as registered Holders themselves.

In connection with their interests, plaintiffs obtained statements of account, commonly referred to as STAC letters, from Euroclear through their respective prime brokers. The letters certified the Notes held in the prime brokers’ Euroclear accounts and identified the interests allocated to the respective plaintiffs. They also authorized the underlying beneficial owners, in accordance with Euroclear’s operating procedures, to maintain proceedings against issuers, guarantors, and other parties where Euroclear, its nominee, a depositary, or the depositary’s nominee was the registered owner of the securities.

On March 23, 2023, following the payment defaults, certain beneficial owners sent Glory a notice purporting to accelerate the outstanding principal and accrued interest. Plaintiffs thereafter commenced suit seeking payment under the Notes and moved for summary judgment on their breach of contract claims. By the time the motion was decided, there was no dispute that the Notes had matured and remained unpaid. The dispute instead centered on whether plaintiffs, as beneficial rather than registered owners, had standing to enforce the Notes and whether defendants’ performance was excused by impossibility.

On standing, plaintiffs relied principally on Euroclear’s operating procedures and the STAC letters. The operating procedures authorized Euroclear participants and the underlying beneficial owners to maintain proceedings against issuers and guarantors in which Euroclear, its nominee, a depositary, or its nominee was the registered owner. The parties also stipulated that the entities in the ownership structure, including the Common Depositary and its nominee, were governed by Euroclear’s procedures. Because plaintiffs obtained the STAC letters through their prime brokers, they maintained that they had followed the chain contemplated by Section 2.06 rather than attempted to exercise Holder rights independently.

Defendants separately contended that their failure to pay was excused by impossibility arising from Chinese governmental restrictions imposed during the country’s real estate crisis. They submitted evidence that Chinese national and local authorities had adopted measures restricting developers’ use of proceeds from presold residential projects and requiring certain funds to be maintained in supervised accounts and used for construction-related purposes. Defendants maintained that these restrictions prevented Glory from transferring funds from its Chinese real estate projects to satisfy the offshore Notes.

Thus, although the action arose from Glory’s failure to pay the Notes, the summary-judgment dispute did not principally concern whether amounts remained unpaid. Rather, it presented two threshold questions: whether the beneficial owners had obtained sufficient authority through the Euroclear structure to sue notwithstanding that they were not themselves registered Holders, and whether the Chinese regulatory restrictions excused defendants’ nonperformance under the doctrine of impossibility.

The motion court granted plaintiffs’ motion. On appeal, the First Department unanimously affirmed.

The Court held that “[p]laintiffs established prima facie that they had standing to commence th[e] action by submitting Euroclear’s policies and operating procedures, as well as statements of account (STAC letters) from Euroclear to the prime brokers authorizing plaintiffs to bring suit.”[1] The Court found that “[t]his evidence was sufficient to establish that plaintiffs had met any requirements imposed by § 2.06 of the indenture.”[2] 

The Court rejected defendants’ argument “that the STAC letters [were] not in and of themselves effective to authorize suit because they flatten[ed] the structure for exercising rights under the indenture, allowing plaintiffs to circumvent the proper procedure and receive authorization directly from Euroclear.”[3] The Court explained that “[a]ll relevant parties in the chain of custody of the notes under the indenture were subject to Euroclear’s procedures, and the evidence in the record show[ed] that plaintiffs worked through their prime broker participants to obtain the STAC letters from Euroclear.”[4] “Indeed,” said the Court, “defendants stipulated that all of the parties in the ownership structure [were] governed by the Euroclear policies and procedures.”[5] Therefore, concluded the Court, “[b]y including Euroclear’s policies and procedures, as well as the authorizations in the form of the STAC letters, plaintiffs showed that all parties, including indirect participant beneficial owners of the notes, were authorized to bring this action.”[6] 

In opposing plaintiffs’ motion, defendants argued that Glory Health’s performance was excused because of an intervening Chinese law making it impossible for the company to make payments due under the Indenture and Notes.[7] The Court held that “Supreme Court properly rejected this defense.”[8] The Court noted that under the terms of the Indenture, it “was expressly governed by New York law, and it did not contain a force majeure clause addressing the risk that Chinese laws would change so as to conflict with New York law.”[9] “Thus,” concluded the Court, “defendants failed to raise an issue of fact as to whether they bore the risk of conflicts between New York and Chinese law.”[10] 

Takeaway

BFAM Asian Opportunities underscores the importance of the contractual framework governing both the enforcement of debt instruments and the allocation of risks that may affect performance. Although plaintiffs were beneficial owners rather than registered “Holders” of the Notes, that distinction did not prevent them from suing. The Indenture required beneficial owners to act through the applicable clearing system procedures, and plaintiffs did so by working through their prime brokers and obtaining Euroclear’s authorization to sue. Thus, the formal designation of another entity as the registered Holder was not dispositive where the beneficial owners followed the contractual mechanism for exercising Holder rights.

BFAM Asian Opportunities also illustrates the application of the impossibility defense under New York law. Defendants argued that intervening Chinese laws restricting Glory Health’s ability to make payments excused its performance. But the Indenture expressly selected New York law and contained no force majeure clause allocating the risk that Chinese law might later change in a manner conflicting with Glory Health’s contractual obligations. Without such a provision, defendants failed to raise an issue of fact as to whether they bore the risk created by the conflict between New York and Chinese law.

BFAM Asian Opportunities thus addresses both the ability of beneficial owners to enforce globally held securities and the consequences of failing to contractually allocate the risk that foreign law may later interfere with performance.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

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[1] Slip Op. at *2.

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id., citing Cortlandt St. Recovery Corp. v. TPG Capital Mgt., L.P., 76 Misc. 3d 1224(A), 2022 N.Y. Slip Op. 51044(U), *9 (Sup. Ct., N.Y. County 2022), mod. on other grounds, 249 A.D.3d 406 (1st Dept. 2026).

[7] Id.

[8] Id.

[9] Id.

[10] Id., citing Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 73 (2006), cert. denied, 549 U.S. 1095 (2006); Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900, 902 (1987).