We had to write something for class today (just 150 words) on something law-related that we considered unjust. Since it was on my mind I just whipped-out the following (nothing brilliant or insightful, but I think this is an interesting and relevant topic to all of us):
Despite all the attention paid to the June 2005 announcement by the G8 that $40 billion in debt would be written-off for 18 of the world’s poorest countries, very little attention has been paid to the vulture funds that swooped into US and British courts to successfully enforce loan repayment agreements that, in many cases, exceed in interest and other penalties the total amount of debt forgiven to many countries in the first place. The most recent example is the 15 February British High Court ruling against Zambia to enforce collection by one such fund headquartered in the British Virgin Islands. Zambia borrowed $15 million from Romania in 1979 to finance the Zambian purchase of Romanian agricultural machinery. Over the next 20 years, interests and penalties accrued such that Zambia’s debt exceeded $40 million. Expecting Zambia to default and looking to recover at least some of its investment, Romania sold its claim to a vulture fund for $4 million in 1999 at pennies to the dollar, and that fund then turned around, in light of Zambia’s projected debt forgiveness under the G8 scheme, and sued to enforce the loan agreement with penalties for more than $52 million. The vulture fund won its case last week (although it appears that it will not get quite as much as it was hoping). This is not a new phenomenon, however, and it is one that is consistently upheld by US federal courts. In summary judgment after summary judgment, US courts routinely find such contracts enforceable. In the 2000 case Elliott Associates, L.P. v. Banco de la Nacion, 194 F.R.D. 116 (S.D.N.Y. 2000), vulture fund mogul Paul Singer (who also happens to be the biggest contributor to George Bush and Rudy Giuliani in New York City) won summary judgment against Peru and its national bank for more than $58 million on debt his fund purchased just four years prior from Peru’s Swiss lender for $11 million; in its summery judgment, the Southern District Court of New York not only found the contract for the debt transfer enforceable, but said even Peru’s claims that the vulture fund acted in bad faith “lack[ed] merit.”
VC