BILL NUMBER: S5542A Revised 3/1/24
SPONSOR: RIVERA
 
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 222-229 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.