To Pay or Not to Pay? Evaluating the Belgian Law Against Vulture Funds

Abstract

Vulture funds are a grave problem for sovereign debt markets. Their uncooperative behavior delays the resolution of sovereign debt crises, inflicting harm on the economic health of financially distressed countries and consenting exchange bondholders. The unconventional ratable payment interpretation of the

Placing Contemporary Sovereign Debt

“…Laws have been passed in the UK, Belgium, and France aiming at restricting holdout creditors' ability to pocket more money than they paid for the debts in contention, protecting Highly Indebted Poor Countries, and making it harder for sovereign property to be seized despite immunity waivers. Holdout creditors suing sovereigns in foreign courts, however, can continue to explore loopholes in existing legislation as well as 'shop' for less restrictive judicial forums (Sourbron & Vereeck, 2017). Since most bonds are issued under New York or English law (IMF 2013) and no legislative action has been pursued in the US yet, ample room remains for holdout creditors to attempt to conquer the perennial challenges of sovereign debt enforcement in New York courts, especially since NML Capital's remarkable victory over Argentina.…”

“…Available at: http://www.ejustice.just.fgov.be/doc/rech_f.htm multilateral efforts geared towards the reduction or cancellation of debts of very poor countries' (Iversen, 2015, p. 30). However, because this resolution did not exempt from attachment public money that was not intended for development aid another effort was put in place to broaden the scope of this initiative (Sourbron & Vereeck, 2017).…”

“…This happened in July, 2015, when the Belgian House of Representatives unanimously passed its 'anti-vulture funds' law (Le Figaro, 2015;Richelle, 2016;Sourbron & Vereeck, 2017). The bill's draft of April 2015 cites several cases of vulture fund-driven litigation in foreign courts as its motivation: Elliott Associates v. Peru in Belgium , Kensington International v. the DRC in Belgium (cited above), FG Hemisphere v. the DRC in a Jersey Court in 2004, Donegal International v. Zambia in British courts ( 2007), and, of course, NML v. Argentina in New York courts (with critical judicial decisions stated in 2008 and 2012).¹⁵ The law established that 'if a Belgian court finds a fund acting as a "vulture", the latter cannot claim more than the discounted price it paid' (Sourbron & Vereeck, 2017, p. 7).…”

The Imf's Role in Sovereign Debt Restructurings

“…For more details, and the Belgian law's (turbulent) background, see Sourbron and Vereeck (2017), Wozny (2017) and Iversen (2019). Critics of the law have argued that it uses subjective criteria to determine "illegitimacy" and, above all, that it risks undermining secondary market liquidity for distressed debt.…”