Assembly Bill A10709

                                BILL NUMBER:A10709

TITLE OF BILL:  An act to amend the general obligations law, in relation
to certain provisions of contracts and debt or equity securities of debt
evading  foreign  states  and  state-owned  corporations of debt evading
foreign states to be void as against public policy

PURPOSE OF BILL: This bill will amend the  general  obligations  law  by
prohibiting certain foreign states, their agencies or instrumentalities,
and  their  state-owned corporations, against whom final judgments of at
least $100 million have remained  unpaid  for  two  years  (collectively
"debt evading foreign states"), from amending their debt or equity secu-
rities,  or  contracts  governing  them  (collectively "obligations") by
revoking, amending, changing or eliminating  (collectively  "amendment")
provisions  in  such  obligations  which in any way relate to a holder's
enforcement rights under such obligations, as  void  as  against  public
policy  and  unenforceable against any holder that has not affirmatively
agreed to such amendment, when the passage of the amendment is by reason
of the votes of holders of such obligations who will no longer be  hold-
ers  upon  passes of the amendment. As a result of this bill, holders of
such obligations, most of which were issued in New York, governed by New
York law, and which contain waivers of immunity and consents to suit  in
New  York, will not be stripped of their ability to enforce their rights
under such obligations, including enforcing judgments  rendered  against
debt  evading  foreign  states,  based  upon the vote of holders of such
obligations who by reason the passage of such amendment will  no  longer
              

remain  holders. This bill will prevent debt evading foreign states from
using exit consents to escape their  obligations,  including  judgments,
with respect to non-participants in debt exchanges. For the avoidance of
doubt, this bill also provides that all of the commitments and duties of
debt  avoiding  foreign  states and enforcement rights of holders of the
debt and equity securities of debt evading foreign states shall  survive
the  entry of final judgment against any such debt evading foreign state
and shall not be merged into any such final judgment.

SUMMARY OF PROVISIONS: Section 1 defines the circumstances under which a
foreign state and its agencies, instrumentalities and state-owned corpo-
rations become debt evading foreign states. It then  provides  that  any
attempt  by  such  debt evading foreign states to impair the enforcement
rights of holders of its obligations shall be void and unenforceable  as
against any holder who did not affirmatively vote in favor of the amend-
ment  revoking  such  enforcement  right,  when  the amendment passes by
reason of the votes of holders of obligations  who  will  no  longer  be
holders  after passage of the amendment. Section 1 also ensures that the
duties and commitments of debt evading foreign states and  the  enforce-
ment  rights  of  holders of its debt or equity securities shall survive
the entry of final judgment against any such debt evading foreign  state
and  shall  not be merged in any such final judgment. Section 2 provides
that the act will take effect immediately.

JUSTIFICATION:  New York taxpayers have invested billions of dollars  in
debt  issued  by foreign sovereigns. To facilitate the issuance of their

debt to New York citizens and other individuals through New York's capi-
tal markets, many foreign sovereigns designate New York as the place  of
payment and the venue where the foreign sovereign waives sovereign immu-
nity  and  consents to jurisdiction to be sued in the case of a default.
As a result, actions to enforce defaulted debt are frequently brought in
state and federal courts located in New York.    Although  many  foreign
sovereigns pay their debts responsibly, some foreign sovereigns that are
capable  of making payments to their creditors instead choose to repudi-
ate their debts and to refuse to pay judgments  rendered  against  them.
Because  of the difficulties associated with enforcing judgments against
foreign sovereigns, New York taxpayers suffer  significant  losses,  and
have  little  legal  recourse, when foreign sovereigns choose not to pay
their debts. The losses incurred by taxpayers significantly  affect  New
York  tax  revenue,  not  only  because New York cannot tax interest and
other gains that are not paid, but also because investors' losses can be
offset against other taxable gains.

The most egregious example of a foreign sovereign  that  is  capable  of
paying  its debt, but that chooses not to, is the Republic of Argentina.
In 2001, Argentina defaulted on $81.2 billion  of  debt,  which  is  the
largest  sovereign debt default in history. Argentina refused to negoti-
ate with its bondholders until 2005, and then offered the bondholders an
exchange worth about 25-cents on the  dollar  on  a  take-it-or-leave-it
basis.

Approximately 76 percent of bondholders accepted the exchange offer, and
Argentina  repudiated  the  remaining portion of its debt. Argentina has
repudiated these debts while claiming, in a recent filing with the Secu-
rities and Exchange Commission, to have a debt-to-gross domestic product
ratio of 49.1 % - less than the ratios of Canada,  the  United  Kingdom,
France, Germany, and a variety of other European countries - and a budg-
et surplus in each year from 2004 to 2008.

Dozens  of  lawsuits have been filed in the United States District Court
for the Southern District of New York as a result of the Argentine  debt
default.  The  two  largest creditors alone have claims and judgments of
over $3 billion. Judge Thomas P. Griesa, the most senior  judge  in  the
Southern  District,  has  repeatedly  observed  that Argentina has never
offered to pay the judgments rendered against it and instead focused all
of its efforts on protecting its assets from  creditors.  In  May  2009,
Judge  Griesa  held  that  Argentina  was in civil contempt of court for
failing to comply with court orders and drew an adverse  inference  that
Argentina had removed assets from New York in violation of court orders.

The  economic  impact of this debt repudiation has been substantial. The
direct net costs  to  New  York  holders  of  defaulted  Argentine  debt
currently  total $902 million, including $452 million in capital losses,
$382 million in foregone interest payments, and $180 million in foregone
investment returns, less nearly $112 million in tax benefits created  by
the  losses or foregone income. From December 2001 to December 2008, the
indirect costs of the Argentine debt default, through lost tax  revenue,
total approximately $329 million.

This  bill  will  prevent debt evading foreign states such as Argentina,
which is presently  preparing  an  offer  to  exchange  certain  of  its
defaulted  debt for new debt of lesser value, from including in the debt
exchange provisions a requirement that those  holders  exchanging  their
debt  vote  to  extinguish  the enforcement rights of holders who do not
participate in the exchange but seek to enforce their rights,  including
judgment enforcement rights, in the courts.

LEGISLATIVE HISTORY: New bill.

FISCAL  IMPLICATIONS  FOR  STATE AND LOCAL GOVERNMENTS:   At present, at
least one debt evading foreign state,  the  Republic  of  Argentina,  is
contemplating  a  securities offering that is likely to include sales or
offers for the sale of securities in New York.  Argentina  has  filed  a
registration  statement  with  the  Securities  and  Exchange Commission
relating to the offer and sale of securities having an aggregate princi-
pal amount of up to$15 billion. If Argentina is  prevented  from  extin-
guishing  the right of holders who do not participate in the exchange to
enforce their rights and  judgments  against  Argentina,  New  York  may
collect  substantial capital gains and avoid the deduction from taxes of
capital losses with respect to  any  judgments  that  are  satisfied  by
Argentina either by agreement or by execution against its property.

EFFECTIVE DATE: This act shall take effect immediately