NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A2970A
SPONSOR: Fahy
 
TITLE OF BILL:
An act to amend the debtor and creditor law, in relation to restructur-
ing unsustainable sovereign and subnational debt
 
PURPOSE:
This bill provides effective and orderly mechanisms for restructuring
sovereign and subnational debt for foreign governments and US territo-
ries against which there are one or more claims governed by or enforced
under New York law. The bill seeks to encourage constructive resolution
of debtor-creditor disputes under New York law, ensure that access to
New York courts is not abused by holdout creditors, encourage equitable
burden sharing between public and private creditors, address economic
and supply chain shocks, prevent financial system disruption, and
protect New York taxpayers and cooperating investors.
 
SUMMARY OF PROVISIONS:
Section 1 names this act the Sovereign Debt Stability Act.
Section 2 creates a new article 8 under debtor creditor law. The bill
allows foreign government and US territory creditors under New York law
to select one of two mechanisms to ensure New York State's laws facili-
tate orderly and efficient restructuring of distressed debt. One mech-
anism is defined by Sections 222-229, and the other is defined by
Section 230.
Section 220 establishes the legislative intent.
Section 221 sets definitions for the following terms: "creditor,"
"claim," "plan," "debtor state," "independent monitor," "international
initiative," "eligible claim," "burden-sharing standards," "section 223
claim," and "section 230 claim."
Section 222 establishes a process by which debtor states can file notice
with New York to be covered under section 223 claims or section 230
claims. The debtor state is allowed to change their claim choice once
before any plan becomes binding.
Section 223 considers claim notifications a voluntary petition for
relief as long as the debtor state certifies that it has not sought
substantially similar relief within the past five years and that relief
is needed to address unsustainable debt; agrees to restructure claims
and to all other terms between section 223-229 of this article; has
enacted any national or subnational law needed to effectuate the agree-
ments; and lastly, is cooperating with the International Monetary Fund
to establish sustainability.
Section 224 requires the debtor state to notify creditors of their
intention to negotiate a plan under a section 223 claim and has the
independent monitor maintain and verify a list of current creditors of
the debtor state. The independent monitor shall be acceptable to the
debtor state and the majority of creditors.
Section 225 requires debtor states and creditors to ensure records are
accurate and discrepancies are addressed amongst each other.
Section 226 allows the debtor state to submit a plan to its creditors
that designates different classes of claims and how each claim will be
restructured. The plan must include the same treatment of each class of
claims, disclosing of claims excluded from the classes of claims,
adequate means for implementation, and certification that the plan will
make the debtor state's debt sustainable. The plan must be approved
through supermajority voting by each class of creditors.
Section 227 allows the debtor state to borrow to implement the restruc-
turing plan and allows creditors to report to the independent monitor
whether or not they agree with the borrowing terms. Such a loan must be
approved by the creditors that hold at least two-thirds in amount of the
claims.
Section 228 provides guidance on how the debtor state shall repay their
loans and claims in accordance to approval by creditors with two-thirds
in principal amount of the covered claims.
Section 229 allows the independent monitor to request a referee or
special master to make recommendations on resolution of disputes for
section 223 claims.
Section 230 allows debtor states in cases where there is an interna-
tional debt restructuring initiative, to prevent creditors from having
access to New York courts to enforce claims in excess of the proportion
that would have been recoverable by the US government had it been the
creditor holding such claim. Section 230 also requires that any restruc-
turing initiative meet burden-sharing standards and robust disclosure
criteria.
Section 231 allows the restructuring for debtor states that are sover-
eign nations to be retroactive.
Section 232 establishes a severability clause. If any provisions of the
bill are held invalid, this invalidity does not affect other provisions
which can be implemented without the invalid provision. If a debtor
state's choice to have claims covered by Sections 223-229 is held inval-
id, another debtor state's choice to have claims covered by
Section 230 is still valid, and vice versa.
Section 3 sets the effective date to be immediately.
 
JUSTIFICATION:
It is a longstanding policy of the State of New York, as the world's
leading financial center, to support orderly, collaborative, and effec-
tive processes for resolving unsustainable debt as part of New York's
debtor-creditor law. It is also the longstanding policy of the United
States government to participate in and support international efforts to
restructure unsustainable sovereign debt. Unlike individuals and corpo-
rations, sovereigns are not subject to liquidation or a standardized
debt restructuring process. This bill will ensure that sovereign debt
entered into under the laws of New York State can be resolved if it
becomes unsustainable, preventing costly disputes conducted .in New York
courts. With approximately half of sovereign debt contracts governed by
New York law, the absence of a legal framework in the state allows bad
faith actors to exploit a void in the legal system and take advantage of
cooperative creditors, jeopardizing the functioning of sovereign lending
markets and the authority of New York State.
Unresolved unsustainable debt burdens over a prolonged period can lead
sovereign nations to lose access to the credit market, hampering their
ability to provide for their population's most basic needs. Making debt
relief provisions more rapid and .efficient will reduce shocks that
disrupt supply chains and trade partnerships on Which New York,the US
economy, and consumers rely. In addition to ensuring that New York's
courts are not misused, the bill will support the stability of the
international financial system, critical to New York's financial system.
Finally, as a center of global commerce, New York is always affected
when unsustainable sovereign debt leads to humanitarian crises, with
attendant refugee flows, political instability, and economic conse-
quences. When such crises occur, they have a knock-on effect on New
York's taxpayers and consumers. These effects on financial markets and
payment systems disproportionately affect New York's economy; thus, the
state has a legitimate interest in facilitating their prompt resolution
 
LEGISLATIVE HISTORY:
2023 - 2024: S5542 (A print includes S4747 Hoylman-Sigal / A2102A Fahy)
2021-2022: S6627 Rivera / A7562 Davila
 
FISCAL IMPLICATIONS:
To be determined.
 
EFFECTIVE DATE:
The act shall take effect immediately after it has become a law.
STATE OF NEW YORK
________________________________________________________________________
2970--A
2023-2024 Regular Sessions
IN ASSEMBLY
February 1, 2023
___________
Introduced by M. of A. FAHY, KELLES, FORREST, SIMONE, SOLAGES, CUNNING-
HAM, GIBBS, LEVENBERG, HYNDMAN, EPSTEIN, REYES, LUNSFORD, SIMON, WALK-
ER, DE LOS SANTOS, McDONALD, WEPRIN, BURGOS, JACKSON, SHIMSKY, RIVERA,
RAGA, STIRPE, MEEKS, COLTON, DeSTEFANO, L. ROSENTHAL, O'DONNELL,
ZINERMAN, BRONSON, DICKENS, THIELE, LUPARDO, PRETLOW, LUCAS, GONZA-
LEZ-ROJAS -- Multi-Sponsored by -- M. of A. STECK -- read once and
referred to the Committee on Judiciary -- reported and referred to the
Committee on Ways and Means -- recommitted to the Committee on Judici-
ary in accordance with Assembly Rule 3, sec. 2 -- committee
discharged, bill amended, ordered reprinted as amended and recommitted
to said committee
AN ACT to amend the debtor and creditor law, in relation to restructur-
ing unsustainable sovereign and subnational debt
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Short title. This act shall be known and may be cited as
2 the "sovereign debt stability act".
3 § 2. The debtor and creditor law is amended by adding a new article 8
4 to read as follows:
5 ARTICLE 8
6 SOVEREIGN AND SUBNATIONAL DEBT
7 Section 220. Legislative intent.
8 221. Definitions.
9 222. Election to be covered by the provisions of this article.
10 223. Petition for relief; recognition.
11 224. Notification of creditors.
12 225. Debt reconciliation.
13 226. Submission, contents and voting on plan.
14 227. Financing the restructuring.
15 228. Priority of repayment.
16 229. Adjudication of disputes.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD04458-02-4
A. 2970--A 2
1 230. Recoverability of section 230 claims.
2 231. Application; opt in.
3 232. Severability.
4 § 220. Legislative intent. The legislature finds that it is a long-
5 standing policy of the United States and the state of New York, as the
6 world's leading financial center, to support orderly, collaborative and
7 effective international sovereign debt relief for countries with unsus-
8 tainable levels of debt. Debt distress, debt crises, and disorderly
9 default are associated with unacceptable human suffering, economic
10 decline, and financial market and payment systems disruption. Moreover,
11 debt restructuring is ineffective and does not lead to sustainable
12 outcomes when it is not perceived as equitable or legitimate by stake-
13 holders in borrowing and lending countries. Additionally, public credi-
14 tors are unlikely to participate in debt restructuring initiatives
15 unless there is fair burden sharing among all public and private credi-
16 tors, which is essential to the legitimacy and effectiveness of debt
17 relief initiatives. Therefore, the legislature finds and declares that
18 it shall be the policy of New York state to support international debt
19 relief initiatives for countries to ensure that the cost of such debt
20 relief is allocated in a fair and equitable manner, and that such costs
21 do not fall disproportionately on the residents and taxpayers of New
22 York state, and for other purposes. The purpose of this article is to
23 provide effective mechanisms for restructuring sovereign and subnational
24 debt so as to:
25 1. reduce the social costs of sovereign and subnational debt crises to
26 residents of New York state;
27 2. reduce systemic risk to the financial system, a system that is
28 concentrated in New York state;
29 3. reduce creditor uncertainty, including to the numerous holders of
30 sovereign debt that are residents in New York state;
31 4. strengthen the role of New York state as a primary location for the
32 issuing and trading of sovereign debt;
33 5. reduce the need for sovereign and subnational debt bailouts, which
34 create moral hazard and are costly to residents of New York state;
35 6. otherwise protect economic activity within New York state's
36 borders, by reducing the likelihood of a sovereign debt default which
37 could adversely impact New York state's economy;
38 7. reduce, out of universal human rights and humanitarian imperatives,
39 the social cost of unresolved sovereign debt crises imposed on the
40 people of nations with unsustainable debt, especially the poorest among
41 them, taking due account of creditor rights; and
42 8. enable debtor states to choose a debt restructuring option that
43 appropriately suits its circumstances and needs.
44 § 221. Definitions. For purposes of this article:
45 1. "creditor" means a person or entity that has a claim against a
46 debtor state;
47 2. "claim" means a payment claim against a debtor state for monies
48 borrowed or for the debtor state's guarantee of, or other contingent
49 obligation on, monies borrowed; the term "monies borrowed" shall include
50 the following, whether or not it represents the borrowing of money:
51 monies owing under bonds; debentures; notes, or similar instruments of
52 original maturity of at least one year; monies owing for the deferred
53 purchase price of property or services, other than trade accounts paya-
54 ble arising in the ordinary course of government operations; monies
55 owing on capitalized lease obligations; monies owing on or with respect
A. 2970--A 3
1 to letters of credit, bankers' acceptances, or other extensions of cred-
2 it of original maturity of at least one year;
3 3. "plan" means a debt restructuring plan pursuant to section two
4 hundred twenty-six of this article;
5 4. "debtor state" means a sovereign nation; or unincorporated territo-
6 ry; or any subnational unit thereof, excluding any municipality whose
7 adjustment or debts is governed by 11 U.S.C. 9;
8 5. "independent monitor" means an individual appointed by the gover-
9 nor, in consultation with the United States department of the treasury,
10 acceptable to the sovereign debtor and to the holders, or their agents,
11 of a majority of the obligations issued under New York law. The inde-
12 pendent monitor is meant to facilitate and encourage an effective,
13 prompt and fair agreement by the parties, as intended by this article.
14 The debtor state shall pay the independent monitor's reasonable costs
15 and expenses;
16 6. "international initiative" means any mechanism, framework or initi-
17 ative in which the United States government and other sovereign states
18 have engaged with international financial institutions and official and
19 commercial creditors to advance the implementation and improvement of
20 prompt and effective debt relief among eligible states, including but
21 not limited to the Heavily Indebted Poor Countries Initiative of the
22 International Monetary Fund and the World Bank, the Debt Service Suspen-
23 sion Initiative of the Group of 20, the Common Framework for Debt Treat-
24 ments beyond the DSSI, also known as the "Common Framework", the Paris
25 Club, and any successor or similar international mechanism, framework or
26 initiatives;
27 7. "eligible claim" shall mean a claim as defined in subdivision two
28 of this section and any judicial or other official domestic or foreign
29 judgment with respect to such a claim against an eligible state partic-
30 ipating in one or more of the international initiatives;
31 8. "eligible state" shall mean a sovereign state eligible to partic-
32 ipate in one or more of the international initiatives;
33 9. "burden-sharing standards" shall mean standards set by the relevant
34 international initiative or international initiatives for equitable
35 burden-sharing among all creditors with material claims on each partic-
36 ipating debtor without regard for their official, private, or hybrid
37 status;
38 10. "section 223 claim" shall mean, as applicable, a claim with
39 respect to which the debtor state has elected for its claims to be
40 covered by section two hundred twenty-three through section two hundred
41 twenty-nine of this article; and
42 11. "section 230 claim" shall mean an eligible claim with respect to
43 which the debtor state issuing such claim has elected to be covered by
44 section two hundred thirty of this article, and not to be covered by
45 section two hundred twenty-three through section two hundred twenty-nine
46 of this article inclusive.
47 § 222. Election to be covered by the provisions of this article. 1.
48 Any debtor state against which there are one or more claims governed by
49 or enforced under New York law shall have the option to apply the
50 provisions of this article to such claims by filing a notice thereof
51 with the state of New York. In such notice, the debtor state shall
52 choose whether those claims shall, to the extent governed by New York
53 law, be covered as section 223 claims or, to the extent enforced under
54 New York law, as section 230 claims. Within thirty days after giving
55 such notice, the debtor state shall notify the holders of such claims
56 and the state of New York of its choice. In the case of a choice to have
A. 2970--A 4
1 those claims be covered as a section 223 claim, the debtor state shall
2 also make the certifications specified in subdivision two of section two
3 hundred twenty-three of this article. Any waiver of the provisions of
4 this subdivision shall be ineffective.
5 2. A debtor state that makes a choice under subdivision one of this
6 section shall have the right to change that choice once, at any time
7 prior to a plan becoming effective and binding on the debtor state and
8 its creditors, by notifying the state of New York and the holders of all
9 claims affected by that choice.
10 § 223. Petition for relief; recognition. 1. The notification under
11 section two hundred twenty-two of this article that claims against a
12 debtor state shall be covered as a section 223 claim shall constitute a
13 voluntary petition for relief with the state of New York.
14 2. Such notice shall certify that the debtor state:
15 (a) seeks relief as a section 223 claim under this article, and has
16 not previously sought relief under this article, or under any other law
17 that is substantially in the form of this article, during the past five
18 years;
19 (b) needs relief as a section 223 claim under this article to restruc-
20 ture claims that, absent such relief, would constitute unsustainable
21 debt of the debtor state;
22 (c) agrees to restructure those claims in accordance with this section
23 through section two hundred twenty-nine of this article;
24 (d) agrees to all other terms, conditions and provisions of this
25 section through section two hundred twenty-nine of this article;
26 (e) has duly enacted any national or subnational law needed to effec-
27 tuate these agreements. If requested by the independent monitor, such
28 petition shall also attach documents and legal opinions evidencing
29 compliance with this subdivision; and
30 (f) is cooperating with the International Monetary Fund to devise an
31 effective, efficient, timely and fair path back to sustainability.
32 3. Immediately after such a petition for relief has been filed, and so
33 long as such filing has not been dismissed by the independent monitor
34 for lack of good faith or the debtor state has not changed its choice
35 under subdivision two of section two hundred twenty-two of this article
36 to have its claims covered by section two hundred thirty of this arti-
37 cle, the terms, conditions, and provisions of this article shall:
38 (a) apply to the debtor-creditor relationship between the debtor state
39 and its creditors to the extent such relationship is governed by the law
40 of this jurisdiction;
41 (b) apply to the debtor-creditor relationship between the debtor state
42 and its creditors to the extent such relationship is governed by the law
43 of another jurisdiction that has enacted law substantially in the form
44 of this article; and
45 (c) be recognized in, and by, all other jurisdictions that have
46 enacted law substantially in the form of this article.
47 § 224. Notification of creditors. 1. Within thirty days after filing
48 its petition for relief, the debtor state shall notify all of its known
49 creditors of its intention to negotiate a plan under section two hundred
50 twenty-three through section two hundred twenty-nine of this article.
51 2. The independent monitor shall prepare and maintain a current list
52 of creditors of the debtor state and verify claims for the purposes of
53 supervising voting under section two hundred twenty-three through
54 section two hundred twenty-nine of this article.
A. 2970--A 5
1 § 225. Debt reconciliation. The creditor claims shall be reconciled
2 against debtor records and any discrepancies shall be addressed between
3 the parties.
4 § 226. Submission, contents and voting on plan. 1. The debtor state
5 may submit a plan to its creditors at any time, and may submit alterna-
6 tive plans from time to time.
7 2. No other person or entity may submit a plan on behalf of the debtor
8 state.
9 3. A plan shall:
10 (a) designate classes of claims in accordance with subdivision six of
11 this section;
12 (b) specify the proposed treatment of each class of claims;
13 (c) provide the same treatment for each claim of a particular class,
14 unless the holder of a claim agrees to a less favorable treatment;
15 (d) disclose any claims not included in the plan's classes of claims;
16 (e) provide adequate means for the plan's implementation including,
17 with respect to any claims, curing or waiving any defaults or changing
18 the maturity dates, principal amount, interest rate, or other terms or
19 canceling or modifying any liens or encumbrances; and
20 (f) certify that, if the plan becomes effective and binding on the
21 debtor state and its creditors under subdivision four of this section,
22 the debtor state's debt will become sustainable.
23 4. A plan shall become effective and binding on the debtor state and
24 its creditors when it has been submitted by the debtor state and agreed
25 to by each class of such creditors' claims designated in the plan under
26 subdivision three of this section. Thereupon, the debtor state shall be
27 discharged from all claims included in those classes of claims, except
28 as provided in the plan.
29 5. A class of claims has agreed to a plan if creditors holding at
30 least two-thirds in amount and more than one-half in number of the
31 claims of such class voting on such plan agree to the plan, without
32 counting claims owned by the debtor state or entities it controls.
33 6. Each class of claims shall consist of claims against the debtor
34 state that are equal in priority, provided that:
35 (a) equal priority claims need not all be included in the same class;
36 (b) claims of governmental or multi-governmental entities holding
37 claims each shall be classed separately;
38 (c) claims that are governed by this article or the law of another
39 jurisdiction that is substantially in the form of this article shall not
40 be classed with other claims; and
41 (d) the fact that a claim arises under, or is supported or evidenced
42 by, a judicial or other official domestic or foreign judgment shall not
43 in and of itself mean that such claim is not equal in priority to other
44 claims.
45 § 227. Financing the restructuring. 1. Subject to subdivision three of
46 this section the debtor state shall have the right to borrow money on
47 such terms and conditions as it deems appropriate.
48 2. The debtor state shall notify all of its known creditors of its
49 intention to borrow under subdivision one of this section, the terms and
50 conditions of the borrowing, and the proposed use of the loan proceeds.
51 Such notice shall also direct those creditors to respond to the inde-
52 pendent monitor within thirty days as to whether they approve or disap-
53 prove of such loan.
54 3. Any such loan shall be approved by creditors holding at least two-
55 thirds in amount of the claims of creditors responding to the independ-
56 ent monitor within that thirty-day period.
A. 2970--A 6
1 4. In order for the priority of repayment, and corresponding subordi-
2 nation, under section two hundred twenty-eight of this article to be
3 effective, any such loan shall additionally be approved by creditors
4 holding at least two-thirds in principal amount of the covered claims of
5 the creditors responding to the independent monitor within that thirty-
6 day period. Claims shall be deemed to be covered if they are governed by
7 this article or by the law of another jurisdiction that is substantially
8 in the form of this article.
9 § 228. Priority of repayment. 1. The debtor state shall repay loans
10 approved under section two hundred twenty-seven of this article prior to
11 paying any other claims.
12 2. The claims of creditors of the debtor state are subordinated to the
13 extent needed to effectuate the priority payment under this section.
14 Such claims are not subordinated for any other purpose.
15 3. The priority of payment, and corresponding subordination, under
16 this section is expressly subject to the approval by creditors under
17 subdivision four of section two hundred twenty-seven of this article.
18 § 229. Adjudication of disputes. The independent monitor may request
19 that a court of competent jurisdiction appoint a referee or a special
20 master to make recommendations to the court regarding the resolution of
21 any disputes arising under a section 223 claim under this article.
22 § 230. Recoverability of section 230 claims. Any section 230 claim
23 incurred prior to the date of an eligible state's application to partic-
24 ipate in one or more international initiatives shall only be recovera-
25 ble:
26 1. to the extent that it comports with burden-sharing standards;
27 2. provided it meets robust disclosure standards, including intercred-
28 itor data sharing and a broad presumption in favor of public disclosure
29 of material terms and conditions of such claims; and
30 3. only up to the proportion of the eligible claim that would have
31 been recoverable by the United States federal government under the
32 applicable international initiative if the United States federal govern-
33 ment had been the creditor holding the eligible claim, and without
34 regard to de minimis clauses.
35 § 231. Application; opt in. 1. Where this article applies, it shall
36 operate both retroactively and prospectively and, without limiting the
37 foregoing, shall with respect to section 223 claims override any
38 contractual provisions that are inconsistent with the provisions of this
39 article. Notwithstanding the foregoing, the provisions of this article
40 shall not operate retroactively as to debtor states that are not sover-
41 eign nations.
42 2. Any creditors of a debtor state whose claims are not otherwise
43 governed by this article may contractually opt in to this article's
44 terms, conditions, and provisions.
45 3. The terms, conditions, and provisions of this article shall apply
46 to the debtor-creditor relationship between the debtor state and credi-
47 tors opting in under subdivision two of this section as if such
48 relationship were governed by the laws of New York state under subdivi-
49 sion three of section two hundred twenty-three of this article.
50 § 232. Severability. If any provision of this article or its applica-
51 tion to any person or circumstance is held invalid, the invalidity
52 shall not affect other provisions or applications of this article which
53 can be given effect without the invalid provision or application, and
54 to this end, the provisions of this article are severable. Without
55 limiting the foregoing, a debtor state's choice to have claims covered
56 as a section 223 claim shall be valid even if its choice to have claims
A. 2970--A 7
1 covered as a section 230 claim of this article would be invalid, and
2 vice versa.
3 § 3. This act shall take effect immediately.