senate Bill S567

2013-2014 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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Archive: Last Bill Status - In Committee


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

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Jan 08, 2014 referred to judiciary
Jan 09, 2013 referred to judiciary

S567 - Bill Details

Current Committee:
Law Section:
General Obligations Law
Laws Affected:
Add ยง5-337, Gen Ob L
Versions Introduced in Previous Legislative Sessions:
2011-2012: S2530
2009-2010: S7666

S567 - 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:S567

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 $160 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:
2012: Senate Bill
2530 (Gianaris) - Died in Senate Judiciary
Committee
2012: Assembly Bill
7136 (Latimer) - Died in Assembly
Judiciary Committee
2012: Senate Bill
7666 (Foley) - Died in Senate
Judiciary Committee
2012: Assembly Bill
10709 (Gianaris) - Died in Assembly Judiciary
Committee

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
________________________________________________________________________

                                   567

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                               (PREFILED)

                             January 9, 2013
                               ___________

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

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD01702-01-3

S. 567                              2

  (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
  (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:

S. 567                              3

  1. FINANCING THROUGH THE INTERNATIONAL DEVELOPMENT ASSOCIATION, UNLESS
SUCH  STATE  IS  ELIGIBLE  FOR FINANCING FROM THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT; OR
  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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