BILL NUMBER: S2333
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 amends the Debtor and Creditor Law, by adding a new article 8,
named Sovereign and Subnational Debt, as it relates to allowing foreign
government and US territory creditors under New York law to select one
of two mechanisms to ensure New York State's laws facilitate orderly and
efficient restructuring of distressed debt. One mechanism is defined by
Sections 222-229, and the other is defined by Section 230 as follows.
Section 220 would establish the legislative intent of this bill.
Section 221 would set 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 would establish 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 would consider claim notifications to be a voluntary peti-
tion 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
agreements; and lastly, is cooperating with the International Monetary
Fund to establish sustainability.
Section 224 would require the debtor state to notify creditors of their
intention to negotiate a plan under a section 223 claim and have the
independent monitor maintain and verify a list of current creditors of
the debtor state. The independent monitor would be acceptable to the
debtor state and the majority of creditors.
Section 225 would require debtor states and creditors to ensure records
are accurate and discrepancies are addressed amongst each other.
Section 226 would allow the debtor state to submit a plan to its credi-
tors 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 would allow the debtor state to borrow to implement the
restructuring 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 would provide guidance on how the debtor state would repay
their loans and claims in accordance to approval by creditors with two-
thirds in principal amount of the covered claims.
Section 229 would allow the independent monitor to request a referee or
special master to make recommendations on resolution of disputes for
section 223 claims.
Section 230 would allow debtor states in cases where there is an inter-
national 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 would allow the restructuring for debtor states that are
sovereign nations to be retroactive.
Section 232 would establish 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
invalid, another debtor state's choice to have claims covered by
Section 230 is still valid, and vice versa.
Section 3 sets the effective date.
 
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:
2021-2022: S6627 Rivera/A7562 Davila
2023-2024: S5542-A Rivera/A2102-A Fahy
 
FISCAL IMPLICATIONS:
To be determined.
 
EFFECTIVE DATE:
Effective Immediately.