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The Emperor's Old Bonds

posted by Mitu Gulati

Inspired by Tracy Alloway's recent piece on antique Chinese bonds (here), a group of my students has gone deep down the rabbit hole of the question of how one might recover on them (or, from the Chinese government’s perspective, how one would block recovery).  If I’m reading Michael, Charlie and Andres correctly, they think that the probability of recovery via litigation is near zero on almost all of the antique Chinese bonds.  All except one special bond issue that no one has brought litigation on yet.  I'm not saying that there is a real possibility of recovery here (if one is a legal realist, one would be deeply skeptical), but we are in the era of Trump.

I love their title, "The Emperor's Old Bonds".  But there is much more to this fun paper (here) than the title. The abstract is below:

Tracy Alloway’s recent article in Bloomberg has suggested that Trump’s trade war may finally provide relief to American holders of defaulted, pre-1950s Chinese bonds. Here, we examine the hurdles set before these bondholders, namely establishing jurisdiction over the People’s Republic of China as sovereign and the long-lapsed statute of limitations. We also evaluate the Chinese government’s possible recourse. 

The key takeaways from our investigation: To establish jurisdiction in the U.S., the bond must be denominated in U.S. Dollars or state a place of performance within the country. To overcome the long-expired statute of limitations, and win an equitable remedy, it must be shown that the PRC not only violated an absolute priority or pari passu clause, but also that they are a “uniquely recalcitrant” debtor. Finally, despite China’s commitment to the odious debt doctrine, the doctrine is unlikely to provide meaningful legal protection in the event of an otherwise successful suit. 

Overall, it is a difficult suit to bring, but through our investigations we have discovered one issue in particular which holds the greatest danger—or perhaps the greatest promise: the 1919 Gold Bond.

Comments

From a quick read, it looks like the paper's authors did not consider the enforceability of the bonds against Taiwan -- although, absent some post-1949 acts of the Taiwan government that I don't know about, the statute of limitations arguments aren't likely to be any better. Are there any Taiwanese tax revenue streams (e.g. on alcohol and tobacco) that could be a "hook" to use in enforcement efforts?

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