July 6, 2011 11:27 pm
NML in UK court victory on Argentine debt
Argentina’s state immunity cannot prevent a hedge fund from enforcing a US court judgment against the country in the English courts, the UK’s highest court has ruled.
The case, which is being closely watched by the distressed debt market for its implications on other cases, centres around NML Capital’s ability to sue in a UK court as it fights to recover its investments a decade after Argentina’s default.
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NML Capital – which is an affiliate of a so-called New York “vulture fund” Elliot Management – bought bonds between 2001 and 2003 issued by the Argentine government at little over half their face value.
NML then sued the Argentine government for the bond’s full value in New York and won its case for more than $284m in a Federal Court in 2006. It then sought to enforce the judgment and recover assets in the English courts.
The Court of Appeal ruled that Argentina was entitled to state immunity but this decision was overturned on Wednesday by the Supreme Court which has ruled that NML can pursue its legal action in the UK.
The case is significant because it gives greater certainty to funds holding distressed government debt over whether they can pursue their lawsuits through the English courts.
If the ruling had gone the other way, lawyers say it could have reduced the appetite of funds to buy government distressed debt and could have affected its pricing.
Vulture funds buy distressed sovereign debt at deep discounts with the intent of suing the state that issued the debt for full recovery. The state issuing the debt will state in which jurisdictions it will accept proceedings.
Philippa Charles, litigation partner at Mayer Brown, said that the ruling was positive for similar vulture funds.
She said the Supreme Court judgment recognised and gave effect to the commercial reality that states, in issuing sovereign debt instruments, have to agree to some level of waiver of their sovereign immunity rights in order to make those instruments commercially attractive.
After nearly a decade of protracted and acrimonious negotiations, Buenos Aires last year persuaded a critical mass of its creditors to take a “haircut” and accept losses on their debt.
During the period of negotiations, Argentina had essentially been shut out of global capital markets by creditor lawsuits which would seek to seize any money the government managed to raise in fresh debt issuance.
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