Sovereign Chicken

posted by Mark Weidemaier

Nothing to see hereSo Argentina plans to ditch Bank of New York Mellon, deposit funds with a local payment agent, invite bondholders to swap into local law and local payment bonds, etc. Not an optimistic sign for those hoping for a quick resolution. And such a transparent violation of the injunction that there really isn't much to say about it. Here's Judge Griesa anyway, from yesterday's hearing: "I want to be very clear, and I want to state it right now. This proposal is a violation of the current orders of this Court and of the Second Circuit. It is illegal, and the Court directs that it cannot be carried out."

But still, no contempt sanctions. Judge Griesa knows he can't win this game of chicken. A federal court's power to impose contempt sanctions on a foreign government is uncertain. The issue is complicated not only by sovereign immunity but by the intricacies of contempt law. There is some precedent for imposing monetary fines, at least for civil contempt. (A contempt order is civil if it is intended to induce compliance; it is criminal if intended to punish past non-compliance. The latter is especially problematic in the sovereign context.) Here's a case imposing a $50,000-a-day fine against the Russian Federation until it complies with a court order to turn over cultural artifacts. But imposing a fine is not the same as collecting it. Russia hasn't paid its rapidly-accumulating fines, which now total around $15 million. Stay tuned; the plaintiffs want a money judgment for that amount, which they can then try to enforce by seizing Russian assets. (Funny, right?) The US government opposes the request.

An order imposing contempt sanctions would just give Argentina something else to ignore.  So the court, quite sensibly, took a pass. But it hardly matters. In a very real sense, Argentina is not the target of the injunction. The targets are the payment intermediaries, who still risk contempt if they facilitate a swap into local bonds. (As, in theory, do bondholders who participate in the swap or modify their rights to facilitate a violation of the order, although this risk seems remote.) Even if there is a swap, then, participation will probably be low. And that's before we even get into the "murkyparticulars of a swap. Argentina watchers might want to find a comfy chair, because the case doesn't look like it's going away soon.

Car Crash image courtesy of Shutterstock

Criminal Law and Financial Distress

posted by Stephen Lubben

I commend to Slips readers Alex Tabarrok's post over at Marginal Revolution entitled "Ferguson and the Modern Debtor’s Prison." 

Argentina and the Swap Puzzle

posted by Anna Gelpern

President Cristina Fernandez de Kirchner has proposed a law authorizing the executive to reroute payments on the restructured bonds out of New York, and to offer all bondholders local-law bonds on 2010 exchange terms. All the buzz has been about the swap. But there is no swap on the table, no capacity to execute a swap, and no more details about the swap than there have been in the press for months. We have even had a hearing about this swap (no, Judge Griesa did not like the idea--though he will have more to say soon, I am sure).

Even if Argentina put a real proposal on the table and figured out a way to execute a swap without the help of any of the mainstream intermediaries worried about New York court orders, any new FX bonds issued in that swap would likely be covered by the same injunction that threatens Argentine-law FX bonds paid through Citi, pending appeal. (Would a swap announcement help or hurt the appeal? Hmmm....) In other words, miles to go from here to there, and nothing to act on for the bondholders just now.

On the other hand, Argentina has the capacity on its own to deposit the next bond payment at Banco Nacion. Sure, this would violate the various court orders and the indenture, but if you are a bondholder and want to get paid, you might just have a real choice come September. I still think few people will show up, for many of the same reasons that would gum up a swap--but there is a high probability of an action-forcing event here.

More to the point, any attempt at firing Bank of New York Mellon and unilateral action in contempt of court would present a real problem for BNYM, the various clearing houses, paying agents and advisers involved. I suspect more lawsuits and resignations will come before any swap is launched.

... which makes me think, again, that this was more about the 40-page retelling of the history and the politics of it all. Escalation is the message.

Escalating to Nowhere?

posted by Anna Gelpern

Here is the proposed law rerouting payments under the restructured, now-defaulted Argentine bonds away from New York. Contrary to reports, the big news is not the swap, but the unilateral attempt at firing Bank of New York Mellon and substituting Banco Nacion in Buenos Aires (or an alternative, if voted by the bondholders). Bondholders could then show up in Buenos Aires or wherever Nacion sends their money to get paid. The proposal would also reopen the 2010 swap to the restructured bondholders and the remaining holdouts.(HT Vladimir WerningKatia Porzecanski) *Correction/Clarification*: Everyone would be invited to go into the swap on 2010 terms under Argentine law and jurisdiction. Since 2010 terms are old news and local law FX bonds are subject to the injunction pending appeals, I am not sure how this helps ... not to mention the transaction costs.

Although the ultimate beneficial holders are not bound by the court orders, it is hard to see how most would get their hands on the FX without the help of entities that would either be clearly bound by or worried about New York court orders (banks, payment and clearing systems with a presence in New York). Some might show up in BA, but I am not holding my breath for a large turnout.

The move is obviously a violation of the court orders (so I guess that would be double contempt?), and not exactly in line with the indenture, which requires any replacement trustee to be a New York financial institution. But this is unremarkable--Argentina's actions so far have not exactly been about clever ways to comply (see full-page ads and ICJ lawsuit).

To me, the tone of the legislative proposal is much more remarkable than the content. It takes 40 pages to tell Argentina's version of the events, including the ways in which the U.S. court system and others have failed it. As an aggrieved sovereign, it has no choice but ...

If ever there was a U.S. strategy, it is no more. Not now, not in January. I am not holding my breath for a RUFO sunrise. For now, I am watching Bank of New York Mellon (still sitting on $539 million in limbo from the June payment) and other agents and advisers in New York. One big mess just got messier.

Lessons From Postal Banking's Past

posted by Pamela Foohey

Post OfficeMehrsa Baradaran (University of Georgia) has a short piece in Slate tracing the history of the U.S. Postal Banking system. In sum, post offices once were banks, the system was in place for over 50 years, and post offices can be banks again. Indeed, at its height, the postal banking system was used by millions of Americans. Then banks moved into the majority of cities and towns and offered customers a more attractive option than using postal savings depositories. But when these banks began leaving low-income neighborhoods in the 1970s, the postal banking system already had died a quiet death, leaving the market open to payday lenders and check cashing operations. As Adam pointed out in his op-ed in American Banker from earlier this year, and as Mehrsa's piece highlights, postal banking may be the key to the current lack of financial inclusion. The piece is a quick and interesting read.

Post office building image courtesy of Shutterstock.

A National Debt Registry?

posted by Adam Levitin

There's a fascinating long magazine piece in the NYTimes about consumer debt sales and collection. The piece ends by asking why we don't have a national debt registry, as if that were the solution to all debt collection problems.  Unfortunately, the author only asked the FTC about this issue (and acknowledges that it isn't in FTC jurisdiction), not the CFPB, and the author doesn't consider any of the problems with creating and implementing a debt registry.  (I'm guessing Dalie will have something to say about this...) As the case of MERS shows, it isn't so easy to create a well-functioning registry of property rights of any sort.  Let me illustrate a few challenges to creating a debt registry:  

Continue reading "A National Debt Registry?" »

Bad Paper: Chasing Debt from Wall Street to the Underworld

posted by Dalié Jiménez

That's the name of a new book by Jake Halpern coming out in October. The New York Times has an excerpt on their site. If the excerpt is anything like the book, it's going to be gripping.

What's even cooler is that someone actually created a video game based on the book. Or at least on the debt collector business part of the book. You can play as a debtor or a debt collector and see the story through. It's web-based image-and-text but really well done (just some minor innacuracies).

 

Hoping in Vain for Secured Creditors to Cede Control

posted by Jason Kilborn

ISI_logo_FinalInitial results of the bargaining process in the new Irish personal insolvency system have been unsurprisingly disappointing. This is particularly true with respect to the most pressing problem for which the system was designed: bargaining with secured creditors over distressed home loans. The new system provides a framework for debtors and their secured creditors to negotiate a so-called Personal Insolvency Arrangement, or PIA, to reduce and/or otherwise restructure home loans and other secured (and unsecured) debt. Someone by the initials JK colorfully predicted in April 2012 that the new "PIA is DOA." I was wrong about this, but not too far off the mark.

Continue reading "Hoping in Vain for Secured Creditors to Cede Control" »

Feeling Vindicated

posted by Adam Levitin

My Consumer Finance students used to think I was wasting their time by spending a whole class session on usury laws and taking them into the nitty-gritty of their application (or non-application). I think usury is important conceptually (but for the Marquette decision and its fallout, our regulation of consumer credit would likely be very different), has a lot of neat statutory reading twists and turns, and it actually can matter for non-bank lenders.  Among other things I cover is the NY state usury statute, including its criminal provisions. Cyrus Vance's prosecution of payday lenders under the usury statute would seem to vindicate my choice of class materials. 

New Case Holding High-Cost Loans Unconscionable and a Payday Loan Video

posted by Nathalie Martin

 A little bit of payday loan news for our readers. First, the New Mexico Supreme Court has held that 1100% high cost installment loans (the payday loan substitute in states where payday loans are illegal) are unconscionable.

Also, did you see John Oliver’s bit on payday loans this weekend? Take a look.  It even features Sarah Silversman. Warning: There is some bad language in the video.

The Problem of Centrality

posted by Stephen Lubben

The Harvard Law School Forum on Corporate Governance and Financial Regulation has a feature on my new paper about the resolution of CCPs (aka clearinghouses).

Pick up A Copy of Financial Justice: The People’s Campaign to Stop Industry Abuse (but first watch three cool videos here)

posted by Nathalie Martin

I recently read a review of the book Financial Justice: The People’s Campaign to Stop Industry Abuse, by economist Larry Kirsch and University of Utah professor Robert N. Mayer. The favorable review induced me to sit down and read the book, all in one sitting. This book about how grassroots efforts helped create the CFPB is a page-tuner. Written for lawyer and non-lawyer alike, it chronicles the entire political battle, along with the political personalities, the policy, the compromises, and the people who made it happen, both up front and behind the scenes. Written for lawyers and non-lawyers alike it is, informal, campy in a good way, and very entertaining.

It is a celebration of Senator Elizabeth Warren and all that she has done, but is also an example of we what we all can do to bring about our own version of justice. Incidentally, it contains a few quotes from credit slips, as well as a quote from our colleague Katie Porter. It also references these two fantastic video, here and here  about the CFPB process.  Although not mentioned in the book, these videos reminded me of another video about the Senator I rather enjoy, found here.
Even though the Senator has now written her own book about her life and others have written about her too, Financial Justice is worth your time,  not just for what it says about the Senator but what it says about the capacity of the rest of us as well.It's a truly populist story.

Bankruptcy Filings Will Be the Lowest Since 1995 -- Here Is a Reason Why

posted by Bob Lawless

2014 Projected Filings from AugustIn June, I said we are on track for just over 900,000 bankruptcy filings for 2014. The latest data are in from Epiq Systems, and that 900,000 figure remains the best estimate for the calendar year. We have had 556,875 total bankruptcy filings this year, and in 2012 and 2013, the last five months added 39.5% more filings. That gives an estimate of abut 907,000 filings for 2014.

Year-over-year declines remain large. There were 77,489 total bankruptcy filings in July or 3,521 filings per business day, a 11.7% decline from the previous year.

As the chart shows, the number of bankruptcy filings will be the lowest in the last seventeen years -- indeed the lowest since 1995. Those of you paying attention at home might point out that 2006 and 2007 appear to be lower, but these were the years around the passage of the 2005 bankruptcy amendments. If we average 2005 - 2007 for a more accurate picture, there were 1.1 million filings per year.

Continue reading "Bankruptcy Filings Will Be the Lowest Since 1995 -- Here Is a Reason Why" »

Warren & Westbrook: Two More Authors = Six More Pages?

posted by John Pottow

WWPP Text coverA dubious ROI you might think, but the long-awaited update to the classic is now here!

Many readers may have learned from or taught from Warren & Westbrook's casebook,  The Law of Debtors and Creditors. Necessitated by one author's distracting moonlighting in Washington, it now picks up an even stronger Credit Slips connection, transforming into Warren, Westbrook, Porter & Pottow.  The Seventh Edition is now in print and ready for use: bankruptcy nerds rejoice!

Those of us who have used this gem for years have recognized it was getting a trifle long in the tooth (the last edition was around 2008 when BAPCPA was just a pup).  Over the course of two years, we did a complete soup-to-nuts revision of the book, keeping the problem set focus and empirical bent -- and of course favorite characters from the problems. We vastly updated and overhauled some content, all within the confines of keeping the book the same length (save six pages of Pottow verbosity).  To give just a flavor, the book now has multiple assignments and problems on 363 sales and a new section on "Beyond Chapter 11," covering such topics as municipal bankruptcy and "too big to fail" financial institutions.  Consumer coverage was also revamped, moving the means test after the students have learned the basics of chapter 7 and chapter 13, and adding a new section on consumer bankruptcy theory and practice.

In the Teacher's Manual, we worked for more clear organization to help those of us in a pinch to prep. And of course, just as students have always feared, some answers changed--even when the problems didn't. We look forward to your comments and feedback, and hope you have as much fun teaching it as we did writing it.

Publishing Opportunity with International Consumer law Journal

posted by Nathalie Martin

The National Law School of India University (NLSIU), Bangalore, sponsored by the Indian Ministry of Consumer Affairs Department, New Delhi. India, is involved in various research activities in the area of Consumer Protection. It publishes the International Journal on Consumer Law and Practices and seeks articles on the topic of consumer law, which might be of use to students, academicians, consumer lawyers, policy-makers, consumers themsleves, and non-governmental organizations worldwide.

The Journal hereby invites contributions to the second Volume of Journal 2014.

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Not all Native Americans are Doing, Let Alone Getting Rich Off, Payday Loans

posted by Nathalie Martin

 The Wall Street Journal has run several stories over the past few years about how Indian Tribes are getting rich off payday lending. These stories always tell a fraction of this story, leaving readers with the misperception that all tribes do this lending and that those who do, get rich. The reality is that only a small percentage of Native people do payday lending, and the only people getting rich off these operations are non-tribal lenders that use tribes to get around state laws. A week or two ago, it happened again. The Wall Street Journal published Payday Loans Have Brought Jobs and Revenue, but Tribal Leaders Say Government Crackdown Jeopardizes Business, once again claiming that tribes are getting rich off this business.

The article, also about operation choke point, claims that payday loan revenues make up one-fifth of the revenue on some tribal lands, but give no details on the dollars made. The story quotes one tribal member making $10 an hour, as well as the head of the Native American Financial Services Association, which represents just 19 of the 566 federal registered Indian Tribes. These people like tribal payday lending. But they are but one tiny voice in the debate as most tribes neither engage in nor condone this business. A July 17, 2014, an Al Jazeera story also covered operation choke point but told a very different story. This article entitled When tribes Team Up With Payday Lenders, Who Profitsdescribes exactly how tribal payday lending (part of the four billion dollar online payday loans industry) works. Little of the revenue flows to the tribe, sometimes 1% of the loan, or even just a finder’s fee of $2.50 to $5.00 per loan.

Continue reading "Not all Native Americans are Doing, Let Alone Getting Rich Off, Payday Loans" »

"Don't give me so much that you've given me nothing" - Remembering M. Caldwell Butler's Contribution to Bankruptcy Law

posted by Melissa Jacoby

Former Virginia Congressman M. Caldwell Butler died last week. He is widely known for his role in the Nixon impeachment proceedings, his efforts to limit extensions of the Voting Rights Act, and his support for ensuring legal representation for low-income individuals. But Congressman Butler is also a major figure in the history of bankruptcy law. He was a principal co-sponsor of the Bankruptcy Reform Act of 1978 that serves as the foundation of the modern bankruptcy system. Professor and lawyer Kenneth N. Klee worked closely with Congressman Butler on the House Judiciary Committee in the 1970s. I asked Professor Klee to share a few words of remembrance with us, which I repeat in their entirety here:

I first met M. Caldwell Butler in 1975 when he became the Ranking Minority Member of the Subcommittee on Civil and Constitutional Rights of the House Judiciary Committee. Caldwell was most interested in the Voting Rights Act legislation and finding a way for the South to get out from under the Act. In his view, Washington was improperly interfering with the sovereignty of the southern states based on predicate acts that had long since ceased to serve as a basis for federal control. He asked me to draft a series of amendments that would permit the South to extricate itself from the Voting Rights Act. The requirements to regain sovereignty were quite demanding, to the point that the amendments became known as the "impossible bailout."  Nevertheless, the amendments did not come close to passing. It was evident that there were no circumstances under which the majority in Congress wanted to let the southern states out from the Voting Rights Act.

Caldwell assumed his responsibilities over bankruptcy legislation with diligence and good cheer. His fabulous sense of humor carried us through many long markup sessions during which the members of the Subcommittee read the bankruptcy legislation line by line. He had a sharp legal mind and deep curiosity. He also was very practical and to the point. He was fond of telling me "don't give me so much that you've given me nothing."

It was a privilege and honor to work with him. The bankruptcy community should join in paying him tribute.

                        -- Ken Klee

Congressman Butler made another round of contributions to bankruptcy reform in the 1990s. The fact that they are not all reflected in today's Bankruptcy Code makes this story more pressing, not less. Well over a decade after he had returned to the practice of law in Virginia, Congressman Butler was appointed to the National Bankruptcy Review Commission, for which I was a staff attorney. Expressing satisfaction with the 1978 Code, the House Judiciary Committee directed this Bankruptcy Commission to focus, for two years, on "reviewing, improving, and updating the Code in ways which do not disturb the fundamental tenets of current law."  Not one to leave the heavy lifting to others, even in a pro bono post, Congressman Butler stepped up to the challenge of forging a compromise, among those with diverging politics and views, to improve the consumer bankruptcy system.

Continue reading ""Don't give me so much that you've given me nothing" - Remembering M. Caldwell Butler's Contribution to Bankruptcy Law" »

Puerto Rico To Get Chapter 9?

posted by John Pottow

Long overdue, in my opinion, HR 5305 has been introduced by Resident Commissioner Pedro Pierluisi.  The one-sentence law would allow the territory of Puerto Rico to join the definition of "State" and hence provide access to chapter 9 for its municipal and other entities.  (And no, the territory itself can't file chapter 9, so don't get your hopes up for that solution to its finances.)

It seems archaic and patronizing not to let the people of Puerto Rico authorize (or forbid) their public entities from using chapter 9.  In terms of the policy decisions involved -- some states refuse their entities to access chapter 9 -- it strikes me at least as eminently more sensible to let the government of that territory make that call rather than Congress.  Here's hoping to swift passage on what should be a non-contentious error correction to the Code.

Twisted Logic Contagion, WaPo Edition

posted by Anna Gelpern

From today's Washington Post editorial:

And the battle between Argentina and the hedgies has certainly clarified U.S. law, to wit: If you borrow money, sooner or later, you have to pay it back.

Continue reading "Twisted Logic Contagion, WaPo Edition" »

Where Do We Go Now?

posted by Mark Weidemaier

Updated: here is the transcript.

Axl Rose may have said it best, but "where do we go now" was the theme of today's Argentina hearing. There wasn't really any official business to conduct. Unless you count all those pending motions about whether Bank of New York Mellon should keep or return the money, the Euro bondholders should get paid, etc. But such mundane matters were not on today's agenda. The judge had issued an order scheduling a hearing "regarding the recent default" by the country. (Wait, was it a default? ISDA's determinations committee thinks so.) When everyone was assembled in the courtroom (and the overflow room) the judge announced that the hearing's purpose was "to clarify where we go from here." And then... not much of substance happened, but there were plenty of fireworks. Recap follows. The transcript isn't ready yet, so I'm relying on my notes for both the substance and the quotations.

Continue reading "Where Do We Go Now?" »

Injunction Math: Acceleration and the Incredible Shrinking Payment Percentage

posted by Anna Gelpern

If some or all of Argentina's Exchange Bond holders accelerate their bonds after last night's default, the amount Argentina owes NML et al. under the terms of Judge Griesa's injunction could plummet.

Continue reading "Injunction Math: Acceleration and the Incredible Shrinking Payment Percentage" »

It Depends, Argentina Edition

posted by Anna Gelpern

The phrase "it depends" was invented 130 year ago by a small group of drunk lawyers from London and New York for the sole purpose of annoying first-year law students, nonlawyers, and people from civil law jurisdictions. Like all things annoying, "it depends" is enjoying a surge in popularity as tensions spike in the Argentine debt saga."It depends" is a magically useful phrase because it can cover up ignorance, describe uncertainty, or assign probabilities in a risky situation. If you are camping out in front of the Special Master's office in New York and hear "it depends" in response to a basic question, you might reasonably wonder which one it is. Here is a mini-guide: 

Continue reading "It Depends, Argentina Edition" »

Small-Dollar Loans to Servicemembers, the Electronics Version (or an Easy Way to Get Around the Military Lending Act)

posted by Pamela Foohey

Yesterday the Consumer Financial Protection Bureau, along with 13 state attorneys general (including from my new home state of Indiana), announced a $92 million settlement and issued an enforcement action against Colfax Capital Corporation and Culver Capital, LLC, known as Rome Finance, for targeting military families (and other consumers) with predatory loans to buy electronics, such as computers and televisions.

Rome Finance would offer credit to consumers for the purchase of such electronics primarily at mall kiosks near military bases, promising instant financing and no money down. Rome Finance then jacked up the price of the electronics, thereby masking true finance charges and APRs, withheld information on bills about balances and payments, and violated various states' laws in collecting the debts. In some instances, service members would receive statements indicating that the APR on their loan was 16% when the APR really was over 100%. The scheme is a reminder of the endless variations that companies peddling alternative financing / high-cost credit may use, and how broad laws against predatory lending need to be in order to be effective.

Continue reading "Small-Dollar Loans to Servicemembers, the Electronics Version (or an Easy Way to Get Around the Military Lending Act)" »

Forget Argentina: How Do You Collect from Russia?

posted by John Pottow

Never let it be said that the wheels of international justice spin quickly, but, with the pace of a Siberian jail sentence, the Permanent Court of Arbitration finally handed down its merits award in the Yukos litigation.  (For those of you not in the know, Yukos was dismantled by the Russian government, nominally as seizure for back taxes -- some levied ex post -- purportedly as an attempt to stymie the political aspirations of its principal, Mikhail Khodorkovsky.)  The decision is a doozy: a unanimous and stinging denunciation of the Russian government in this series of transactions, with such zingers as "calculated expropriation" and accusations that the governmental scheme was "devious."  The award of a cool $50 billion was far less than the plaintiffs wanted but was a record-setter for the Court.

Russia, of course, is vowing "appeal" (not quite sure to where -- strongly worded letter?), but this really means the fight now enters the collection phase.  Maybe Russia has some frigates to grab?

Here's a link to the ruling.

A Stay Would Not Affect the Plaintiffs... Except by Eviscerating the Injunction

posted by Mark Weidemaier

Unless the plaintiffs request a stay (and quick!), this will probably be the last request for Judge Griesa to stay the injunction before Argentina defaults officially fails to put money into the bank accounts of exchange bondholders. It is an emergency motion to stay filed by Knighthead Capital Management and other holders of euro-denominated bonds. They want the judge to stay the injunction for at least 90 days, so that they can try to round up votes to waive the RUFO clause, or through the end of the year, when the RUFO clause expires. They add that "a stay would not affect the plaintiffs at all, since they have not been paid since 2001..."

I do worry that, when all of this is over, I will have lost my ability to detect humor. A stay would only remove all of the leverage plaintiffs have spent over a decade obtaining. Sure, the judge can reinstate the injunction. But, having blinked once, Judge Griesa will have lost credibility and Argentina's incentives to negotiate will be reduced even further. That's a problem, when the whole point of the injunction is to present Argentina with a credible threat of default. Anyway, so far as I can tell, the facts on which the motion is premised have been known for some time, and the judge just denied Argentina's request for a stay, so I'm not holding my breath for this to be granted.

Whose Fault Is the Argentina Debacle?

posted by Adam Levitin

I name names and point fingers in the Wall Street Journal.  NML gets some blame for overplaying its hand, but the fault primarily lies with the federal courts for letting the case go forward. I understand the courts being angered by an unrepentant debtor thumbing its nose at them, but the federal courts should know better than to get into a pissing match with a foreign sovereign. Federal judges are possessed of awesome powers, but not that awesome. It's not at all clear to me how Judge Griesa's going to get this case out of the hole he dug, and the recent reporting on the case indicates that he doesn't have any idea either. "We're in the soup."  Indeed. 

The Incredible, Magical, Shrinking Injunction?

posted by Mark Weidemaier

Judge Griesa has approved Citibank's request to transfer funds it received in payment of both dollar- and peso-denominated, Argentine-law bonds. Order attached. The difficulty, as described in this recent letter from Citibank, is that some of the country's Argentine-law bonds are subject to the injunction, and some are not. The latter group includes bonds issued as part of the country's settlement with Repsol. But it isn't possible to distinguish the payments, because all the bonds have the same ISIN number. Oops. What to do? Judge Griesa "does not wish to upset the settlement with Repsol," so he has allowed Citibank to make payment on all of the Argentine-law bonds, including exchange bonds subject to the injunction. But just this once. The parties are supposed to work together to "devise a way to distinguish between the Repsol bonds and the exchange bonds before the next interest payment is due." I'm not sure how that will work, but I suppose there are bigger fish to fry at the moment. Tick tock. Tick tock.

Not Fraudulent, Voidable

posted by Bob Lawless

At its annual meeting, the National Conference of Commissioners on Uniform State Laws (NCCUSL) formally adopted the Uniform Voidable Transactions Act (UVTA). Under its provisions, I believe it says any service member in uniform will be able to avoid a transaction . . . . Hold on, let me give it a read.

Continue reading "Not Fraudulent, Voidable" »

Guess the Date – Holdout Edition

posted by Stephen Lubben

The bill admits, that the whole amount divided among all the [creditors], was not enough to satisfy the complainant’s debt. What a singular proposition then to maintain, that although the whole were only entitled, in Law, to a less sum than this individual claims, out of the entire proceeds, yet that this and every other creditor of the same grade, by standing out and standing off, and pursuing his remedy separately, would realize the sum total of his claim! And if such a procedure were permitted, when and where would these successive foreclosures and sales or sequestrations terminate?

Sounds vaguely familiar

The answer can be found here.

You Say Poignant, I Say Depressing

posted by Mark Weidemaier

As Anna points out, there are indeed moments of poignancy in the pari passu litigation, largely having to do with the fact that, days from a major sovereign default induced in no small part by their rulings, the US courts only now seem to be discovering basic facts about the case. The transcript of the most recent hearing before the district court contains passages that might have been appropriate two years ago, but are depressing to encounter now.

For example, the court was initially willing to let Citibank Argentina pass along payments it received on USD-denominated, Argentine-law bonds, despite the fact that the injunction doesn't seem to distinguish these payments from those made to other bondholders. But then it turned out the judge was assuming that (i) the relevant bonds were not issued in exchange for defaulted debt (transcript, p. 5), (ii) were held by folks in Argentina who didn't need to be "dragged into this overall difficulty" (p.7), and (iii) in any event comprised only a "minute exception" to the injunction because the amount of money was small (p. 10). Upon learning that each of these assumptions was false, the judge lamented: "There is a lot to do today."

Continue reading "You Say Poignant, I Say Depressing" »

Pari Passu Poignancy

posted by Anna Gelpern

It is too easy to miss poignant moments in the news avalanche of Argentina debt litigation. Here is one from Judge Griesa's monologue at the July 22 hearing:

I can't remember whether it was 2010 or 2011, but thereabouts, the attorneys for the plaintiffs requested the Court to recognize a provision which had been in the contractual documents all along but had not been relied on, and that is the pari passu provisions, essentially meaning if the republic paid certain kinds of debts, there had to be a recognition -- and I'm not trying to get into the arithmetic -- there had to be a recognition of the rights of people with judgments under the pari passu clauses, whatever they were.

Whatever they were indeed.

Once More, With ... Something

posted by Stephen Lubben

So we are again treated to what has become an annual tradition:  the analysis of Dodd-Frank on its anniversary.  The Republicans trot out a report critical of the Act, and the Democrats defend it.  Yawn.

Actually, this year the Republican report is not half bad.  Sure it contains the usual rubbish about the Community Reinvestment Act, which really had nothing to do with the crisis.

But in many respects, it raises good points and real concerns about whether Dodd-Frank actually solved the "too big to fail" problem, and whether regulators got off too easy by saying they needed new powers, while barely using the ones they already had.

The name on the cover will scare off some Slips readers – Chairman Hensarling's politics are rather strident, to put it mildly.  But the report deserves to be read.

On the other hand, former Congressman Frank's retort that "[t]he Dodd-Frank Act is clear:  Not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it" is something of a head scratcher.

The law against bailouts is binding on Congress in the same way that Conan Doyle was bound by his decision to send Holmes to Reichenbach Falls.  

Dodd-Frank was a start, but we should not pretend it is perfect.  The Republican report raises some very important questions – I likely disagree with them about how to address those questions, but that does not take away from their importance.

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  • Free Kindle and ePub versions of the Bankruptcy Code are available through Credit Slips. For details and links, visit the original blog post announcing the availability of these files.

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Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, visit http://listserv.uiuc.edu/archives/bankr-l.html and click on the link for "Join or leave the list." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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