Sovereign Debt - NY Legislation

There is an emerging effort to legislate a framework for facilitating negotiations and guiding the outcomes of sovereign debt crises. New York law, which governs nearly half of developing countries' external sovereign debt to private creditors, plays a significant role in this development. During the 2023 legislative session, three bills were introduced in both the New York State Assembly and the New York State Senate to address some of these sovereign debt restructuring concerns and to improve the private sector's involvement in dealing with sovereign debt issues. The key changes proposed by these bills were: 

• Assembly Bill A5290 and Senate Bill S5623: The bill provides courts with non-exhaustive criteria to identify champertous assignments, where financial claims are acquired solely for suing the debtor. It mainly applies to foreign sovereigns and U.S. territories outside Chapter 11 protection. This legislation doesn't eliminate legal action but shields debtor governments from costly court battles with litigation-focused financial firms. This involves amending Section 489 of the New York Judiciary Law.
• Assembly Bill A2102A and Senate Bill S5542: The bill aims to create a unified platform for creditors of financially distressed sovereigns, overseen by a neutral facilitator accepted by both the debtor and the majority of creditors under New York law. It envisions a process where the distressed nation presents a restructuring plan, categorizing claims and restructuring methods, approved through supermajority votes from different creditor classes. This involves amending the New York Banking Law with a new Article 7.
• Assembly Bill A2970 and Senate Bill S4747: The bill aims to set legal restrictions on recoveries in New York courts for claims from eligible governments involved in international debt relief efforts, ensuring fair treatment for all creditors in sovereign debt restructurings. Under the proposed law, creditors with New York law obligations would be capped at recovering the amount the U.S. federal government would have received under the applicable international initiative, like the G-20 Common Framework. This involves amending the New York Debtor and Creditor law with a new Article 10-B.

The 2023 legislative session ended without plenary action on any of the three bills. However, there is an expectation of a reintroduction of these bills during the 2024 legislative session. IGP hosted a closed-door roundtable of experts and practitioners convened by Joseph Stiglitz, IGP Faculty Advisory Board member and University Professor, and Martín Guzmán, IGP Affiliated Faculty member. The roundtable participants explored the most suitable New York legislation for sovereign debt restructuring and assessed the merits of the 2023 bills. A detailed report summarizing the discussions at and recommendations of the roundtable will be published in early 2024.