senate Bill S2530

2011-2012 Legislative Session

Declares certain contracts to which a debt evading foreign state is a party to be void as against public policy

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  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor

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Senate Actions - UPPERCASE
Jan 04, 2012 referred to judiciary
Jan 25, 2011 referred to judiciary

S2530 - Bill Details

See Assembly Version of this Bill:
A7136
Current Committee:
Law Section:
General Obligations Law
Laws Affected:
Add ยง5-337, Gen Ob L
Versions Introduced in 2009-2010 Legislative Session:
S7666, A10709

S2530 - Bill Texts

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Declares certain contracts to which a debt evading foreign state is a party to be void as against public policy.

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BILL NUMBER:S2530

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 securities, 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 holders
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
corporations 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 amendment 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 enforcement 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 capital markets, many foreign sovereigns designate New York as
the place of payment and the venue where the foreign sovereign waives
sovereign immunity 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 repudiate 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 negotiate 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 Securities 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 budget 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
principal amount of up to$15 billion. If Argentina is prevented from
extinguishing 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.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  2530

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                            January 25, 2011
                               ___________

Introduced  by Sen. GIANARIS -- read twice and ordered printed, and when
  printed to be committed to the Committee on Judiciary

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

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The general obligations law is  amended  by  adding  a  new
section 5-337 to read as follows:
  S  5-337. CERTAIN AMENDMENTS OF CONTRACTS ENTERED INTO BY DEBT EVADING
FOREIGN STATES AND BY STATE OWNED CORPORATIONS OF DEBT  EVADING  FOREIGN
STATES  VOID AS AGAINST PUBLIC POLICY. (A) AN AMENDMENT OF A CONTRACT TO
WHICH A DEBT EVADING FOREIGN STATE, AN AGENCY OR  INSTRUMENTALITY  OF  A
DEBT EVADING FOREIGN STATE, OR A STATE-OWNED CORPORATION OF A DEBT EVAD-
ING  FOREIGN STATE IS A PARTY, INCLUDING A CONTRACT GOVERNING DEBT OBLI-
GATIONS OF OR EQUITY SECURITIES ISSUED BY A FOREIGN STATE, ADOPTED BY  A
VOTE OF THE PARTIES TO, OR THE RECORD OR BENEFICIAL HOLDERS OF THE OBLI-
GATION  IN  CONNECTION  WITH  A  TRANSACTION WITH THE FOREIGN STATE AS A
RESULT OF WHICH THE HOLDERS VOTING IN FAVOR OF SUCH  AMENDMENT  WILL  NO
LONGER BE HOLDERS, AND WHICH PURPORTS TO REVOKE, AMEND, CHANGE OR ELIMI-
NATE  A  PROVISION  WHICH  RELATES  IN ANY WAY TO A HOLDER'S ENFORCEMENT
RIGHTS UNDER SUCH OBLIGATION, INCLUDING BUT NOT LIMITED TO AN  AMENDMENT
THAT RELATES TO A PROVISION WHEREBY THE FOREIGN STATE:
  (I)  WAIVES THE IMMUNITY OF SUCH FOREIGN STATE WITH RESPECT TO ACTIONS
OR PROCEEDINGS, INCLUDING ACTIONS OR PROCEEDINGS TO  ENFORCE  ANY  FINAL
JUDGMENT ENTERED AGAINST SUCH FOREIGN STATE, BROUGHT BY ANY HOLDER BASED
UPON OR WITH RESPECT TO SUCH OBLIGATION; OR
  (II)  DESIGNATES THE COURTS OR JURISDICTION TO WHICH THE FOREIGN STATE
WILL SUBMIT FOR PURPOSES OF SUIT,  OR  FOR  ACTIONS  OR  PROCEEDINGS  TO
ENFORCE ANY FINAL JUDGMENT; OR

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD05797-01-1

S. 2530                             2

  (III)  DESIGNATES THE CHOICE OF LAW SET FORTH IN ANY SUCH CONTRACT FOR
PURPOSES OF DETERMINING THE RIGHTS AND DUTIES OF THE PARTIES TO ANY SUCH
CONTRACT; OR
  (IV)  ELIMINATES  ANY  OBLIGATION  OF THE FOREIGN STATE TO APPOINT AND
MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE  JURISDICTION  TO  WHICH
THE  FOREIGN  STATE HAS SUBMITTED OR IN WHICH IT IS SUBJECT TO JURISDIC-
TION; OR
  (V) COMMITS NOT TO CREATE OR PERMIT TO SUBSIST ANY LIEN, PLEDGE, MORT-
GAGE, SECURITY INTEREST, DEED OF TRUST, CHARGE OR OTHER  ENCUMBRANCE  OR
PREFERENTIAL  ARRANGEMENT WHICH HAS THE PRACTICAL EFFECT OF CONSTITUTING
A SECURITY INTEREST; OR
  (VI) COMMITS THAT ITS DUTY TO MAKE PAYMENT WILL RANK, AND PAYMENT WILL
BE MADE, PARI PASSU, OR AT LEAST EQUALLY,  WITH  ANY  OTHER  PRESENT  OR
FUTURE  PAYMENT  OBLIGATION,  SHALL BE VOID AS AGAINST PUBLIC POLICY AND
UNENFORCEABLE AGAINST ANY HOLDER THAT HAS NOT  AFFIRMATIVELY  AGREED  TO
SUCH  AMENDMENT,  REGARDLESS  OF THE PERCENTAGE OF HOLDERS OF SUCH OBLI-
GATION VOTING FOR SUCH AMENDMENT.
  (B) ANY PROVISION OF A CONTRACT TO WHICH A FOREIGN STATE IS  A  PARTY,
INCLUDING  A  CONTRACT  GOVERNING THE OBLIGATIONS OF SUCH FOREIGN STATE,
WHICH RELATES IN ANY WAY TO A HOLDER'S ENFORCEMENT RIGHTS UNDER ANY SUCH
OBLIGATIONS, INCLUDING BUT NOT LIMITED TO THOSE SET FORTH IN SUBDIVISION
(A) OF THIS SECTION, SHALL SURVIVE THE ENTRY OF FINAL JUDGMENT ON BEHALF
OF ANY HOLDER AGAINST ANY SUCH FOREIGN STATE AND  SHALL  NOT  BE  MERGED
INTO ANY SUCH FINAL JUDGMENT.
  (C)  THE  FOLLOWING  TERMS  AS  USED  IN  THIS SECTION, SHALL HAVE THE
FOLLOWING MEANING UNLESS A DIFFERENT MEANING CLEARLY  APPEARS  FROM  THE
CONTEXT:
  (I)  "AGENCY  OR  INSTRUMENTALITY  OF  A FOREIGN STATE" SHALL MEAN ANY
ENTITY:
  (A) WHICH IS A SEPARATE LEGAL PERSON, CORPORATE OR OTHERWISE; AND
  (B) WHICH IS AN ORGAN OF A FOREIGN STATE OR A PROVINCE, OR  ANY  POLI-
TICAL  SUBDIVISION  THEREOF;  OR A MAJORITY OF WHOSE SHARES OR ANY OTHER
OWNERSHIP INTEREST IS OWNED BY A FOREIGN STATE OR  A  PROVINCE,  OR  ANY
POLITICAL SUBDIVISION THEREOF; AND
  (C)  WHICH  IS  NEITHER A CITIZEN OF A STATE OF THE UNITED STATES, NOR
CREATED UNDER THE LAWS OF ANY THIRD COUNTRY.
  (II) "FINAL JUDGMENT" SHALL MEAN ANY JUDGMENT THAT IS NO LONGER ELIGI-
BLE TO BE APPEALED TO ANY COURT.
  (III) "FOREIGN STATE" INCLUDES A PROVINCE OR POLITICAL SUBDIVISION  OF
A FOREIGN STATE.
  (IV) "DEBT EVADING FOREIGN STATE" SHALL MEAN:
  (A) ANY FOREIGN STATE THAT:
  (I) HAS ONE OR MORE FINAL JUDGMENTS ENTERED AGAINST IT BY ANY STATE OR
FEDERAL  COURT  LOCATED  IN  THIS  STATE,  INCLUDING  ANY FINAL JUDGMENT
ORIGINALLY ISSUED IN A FOREIGN COURT THAT IS FILED OR REGISTERED IN THIS
STATE, IN THE COMBINED AMOUNT OF WHICH  JUDGMENTS  EXCEEDS  ONE  MILLION
DOLLARS;
  (II)  FAILS  TO SATISFY IN FULL ANY SUCH JUDGMENT FOR A PERIOD OF MORE
THAN TWO YEARS AFTER THE JUDGMENT BECOMES A FINAL  JUDGMENT,  REGARDLESS
OF  WHETHER SUCH JUDGMENT BECAME A FINAL JUDGMENT BEFORE THE DATE OF THE
EFFECTIVE DATE OF THIS SUBDIVISION; AND
  (III) IS NOT A FOREIGN STATE ELIGIBLE FOR:
  1. FINANCING THROUGH THE INTERNATIONAL DEVELOPMENT ASSOCIATION, UNLESS
SUCH STATE IS ELIGIBLE FOR FINANCING FROM  THE  INTERNATIONAL  BANK  FOR
RECONSTRUCTION AND DEVELOPMENT; OR

S. 2530                             3

  2.  DEBT  RELIEF  UNDER  THE  ENHANCED  HIPC INITIATIVE, AS DEFINED IN
SECTION 1625(E)(3) OF THE UNITED STATES INTERNATIONAL  FINANCIAL  INSTI-
TUTIONS  ACT,  OR  DEBT RELIEF UNDER THE MULTILATERAL DEBT RELIEF INITI-
ATIVE OF THE INTERNATIONAL MONETARY FUND; AND
  (B) A PROVINCE OR POLITICAL SUBDIVISION OF A FOREIGN STATE REFERRED TO
IN SUBPARAGRAPH (A) OF THIS PARAGRAPH.
  (V)  "STATE-OWNED  CORPORATION  OF A DEBT EVADING FOREIGN STATE" SHALL
MEAN ANY CORPORATION OR ENTITY, OTHER THAN A NATURAL PERSON:
  (A) THAT IS AN AGENCY OR INSTRUMENTALITY OF A FOREIGN STATE THAT IS  A
DEBT EVADING FOREIGN STATE; OR
  (B) THAT A MAJORITY OF THE SHARES OR OTHER OWNERSHIP INTEREST OF WHICH
IS  HELD, EITHER DIRECTLY OR INDIRECTLY, BY A DEBT EVADING FOREIGN STATE
OR BY AN AGENCY OR INSTRUMENTALITY OF A FOREIGN STATE  THAT  IS  A  DEBT
EVADING FOREIGN STATE.
  S 2. This act shall take effect immediately.

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