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Sound and Fury, Signifying... Contempt for Argentina?

posted by Mark Weidemaier

Ordered not to carry out its planned swap into local-law (and local payment) bonds, Argentina has now deposited funds for the June 30 payment with Bank of New York Mellon, trustee under the exchange bonds. Via Joseph Cotterill at FT Alphaville, here is NML's response, which asks Judge Griesa to schedule contempt hearings. (Technically, to order Argentina to show cause why it should not be held in contempt.) The plot thickens.

Judge Griesa's contempt power in this case is limited. That is putting it mildly. Argentina has violated the injunction - or so it seems - by depositing funds for exchange bondholders without tendering the required payment to plaintiffs. In an ordinary case not involving a sovereign government, such a willful violation might result in contempt sanctions. But in this case, an order of contempt would be largely symbolic, as no meaningful penalty can be imposed. The judge might (even this is disputed) be able to impose a fine. But the fine, like the money judgments against Argentina, would be uncollectible. So an order of contempt cannot change the status quo in any material way. Nor is it likely that BNY Mellon will pass the deposited funds along to exchange bondholders. Unlike Argentina, it has a real reason to fear contempt sanctions.

Consequently, whatever happens in Judge Griesa's courtroom will be little more than a sideshow at this point. What the deposit accomplishes for Argentina is unclear. It demonstrates good faith to exchange bondholders. Perhaps (though I have my doubts) it also allows Argentina to argue that it is in technical compliance with its obligations under the exchange bonds. And the payment may serve to maintain negotiating leverage with NML and the other plaintiffs. That may be the important point. At this point, any meaningful action will take place behind closed doors, in negotiations between Argentina and the plaintiffs.


Thx for the post. I have a couple of questions: if Argentina is in contempt of court, can judge Griesa attach the funds deposited today by the government in BONY's account at the Central Bank? If so, is the full deposit "attachable" or only the portion that is compatible with ratable payment? Regards.

Mariano: These are good questions, but too complicated (and specific) to be answered here, or by me. But it's worth keeping in mind that (i) the judge may not have contempt power in the first place, (ii) if the judge has that power he may not exercise it, and (iii) even if he holds Argentina in contempt and tries to impose a fine, it is not clear that the fine can be collected through the same mechanisms available to a private creditor who holds a money judgment. But even if we overlook all of these things, there is no necessary or logical connection between a contempt sanction and the ratable payment owed to NML. It is contempt of *court* not contempt of NML.

My understanding is that once the funds are in the hands of BNY (the Trustee), they are property of the exchange bondholders, not Argentina. If so, i wouldn't think they could be attached to enforce any action against the Republic. I am curious why BNY would even accept the funds, assuming they have which is not clear from Kicillof's statement

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