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Vulture fund takes the Belgian government to court - and Belgian NGOs join the defence team

Added 05 Mar 2018

Guest blog by Antonio Gambini, researcher at CNCD-11.11.11

This week (March 7), three NGOs will stand shoulder-to-shoulder with the Belgian government to defend a 2015 law that can stop so-called “vulture funds” from making huge profits from a country’s debt crisis.   

NML Capital Ltd (a vulture fund established in the Cayman Islands owned by Elliott investment fund and led by the American billionaire Paul Singer) launched a challenge against this law before the Belgian Constitutional Court. NML Capital argued that it should be annulled for being contrary to the Belgian Constitution.

The Belgian NGOs (CADTMCNCD-11.11.11 and 11.11.11), have hired a lawyer to defend the law when the case comes to court on Wednesday and citizens will gather outside the court to show their support for this vital legislation.

Vulture funds are speculative investment funds specialised in buying up “old” sovereign debt from the original creditors at a very low cost. They can do this because the country has already defaulted on this debt or it appears to be at risk of defaulting. They then launch multiple litigation procedures in different jurisdictions against the country (the sovereign debtor), in order to obtain repayment of the face value of the debt plus the accumulated interests.

A Belgian law adopted three years ago limits the rights to repayment to the actual price of the sovereign debt in question, when the creditor pursues an “illegitimate advantage”. The legal test for this is first the existence of a “manifest disproportion”- in other words an unacceptably huge difference - between the price paid to buy the debt and its actual face value.

At least one of the following six conditions also needs also to be met:

  • the state was insolvent or in imminent risk of default when the debt was bought;
  • the creditor is established in a tax haven (defined by reference to the FATF, OECD and Belgian official blacklists);
  • the creditor has a record of excessively multiplying litigations;
  • the creditor refused to participate to a debt restructuring agreement;
  • the creditor has abused the weakness of the debtor to negotiate a manifestly unfair debt reimbursement agreement;
  • the full repayment of the creditor’s claim would have a significant impact on the state’s public finances and could have an adverse effect on the economic and social welfare of its population.  

It is important to note that this law was approved by the majority of the Belgian Parliament, despite the opposition of the Belgian Central Bank, lobbying efforts of the finance industry and a conservative-leaning parliamentary majority and government coalition.

As such, this law should serve as a model for replication in many other countries. The outcome document from the third UN conference on Financing for Development (2015 in Addis Ababa) expressed a similar opinion: “We are concerned by the ability of non-cooperative minority bondholders to disrupt the will of the large majority of bondholders who accept a restructuring of a debt-crisis country’s obligations, given the potential broader implications in other countries. We note legislative steps taken by certain countries to prevent these activities and encourage all Governments to take action, as appropriate.”   

On March 7, the court case will start at 14h15. Concerned citizens will gather from 12h30, outside the court in Place Royale, Brussels.