Legislative Coverage: NY State Assembly Adjourns Without Passing Sovereign Debt Champerty Bill

The New York State Assembly adjourned without passage of sovereign debt champerty legislation that would restrict hedge funds from purchasing sovereign debt solely for the purpose of litigation.

On June 4 the New York State Senate passed a champerty bill, S.1477, sponsored by Sen. Liz Krueger. According to the senator, the bill would remove a provision enacted in 2004 that provided a safe harbor to investors by allowing them to purchase claims “with the intent and purpose to sue” for claims exceeding $500,000. The aim of the bill, the senator said, is to reduce litigation and “to support orderly sovereign debt restructurings.”

Companion legislation, A643A, sponsored by Assembly Member Jessica González-Rojas, remained in the Judiciary Committee at the conclusion of the Assembly’s legislative session.

Industry organizations such as the Creditor Rights Coalition and Loan Syndication and Trading Association opposed the legislation. In a June 4 advocacy memo, they argued that the bill represents a “re-imposition and unprecedented expansion of the champerty defense against payment of valid obligations owed by sovereign debtors would have significant, wide-ranging, and unintended negative consequences for New York State and global financial markets.”

Marc Heimowitz, head of advocacy for the CRC, said in a statement to Octus: “We are pleased that our efforts together with the LSTA and other industry organizations were successful in defeating the ill conceived Champerty Bill last night. We will continue to advocate on behalf of creditor rights to ensure transparency and equal treatment for similarly situated creditors.”