Case of the Month: NML Capital v. Republic of Argentina

If you follow the news you may have seen news reports regarding a case in a New York federal court, NML Capital v. Republic of Argentina.   It's a useful case to study for US legal terms, the federal court system, and where politics and the law intersect.  Below is a simplified summary.

The background to the case is that Argentina issued bonds.  You're probably familiar with bonds:  bonds help companies and countries to raise money.  Basically, investors give money now in return for a promise to get paid back with interest later.  

Argentina has a history of defaulting - - failing to pay back investors.  To help encourage people to buy Argentina's bonds Argentina agreed that if there was a legal battle in connection with the bonds that Argentina would litigate in New York federal court.  The reason to litigate in New York is that New York would be perceived as a neutral place to settle any dispute.  Investors might be nervous about litigating against Argentina in Argentina's courts and would be less willing to buy Argentina's bonds.

 So investors bought the bonds but Argentina defaulted.  Argentina told bondholders that they could get back around 30 cents for every dollar.  Many bondholders agreed to this offer.  In the news you will see the bondholders who agreed to this deal called Exchange Bondholders.  Exchange Bondholders means the investors who agreed to accept Argentina's offer.

But not all the investors agreed to accept Argentina's offer.  Other bondholders wanted Argentina to pay what it owed on the bonds.  These bondholders sued in New York federal court (the case is captioned NML Capital Ltd. v. The Republic of Argentina).  Let's call the bondholders who did not accept the deal "plaintiffs".

The federal court ordered Argentina to not pay the Exchange Bondholders unless Argentina also agreed to make payments to the plaintiffs in the court case.  Argentina, among other things, argued that the US federal court could not tell Argentina what to do because Argentina is a sovereign country.

The judge found Argentina to be in contempt because Argentina failed to follow his orders.   The plaintiffs want the judge to impose a penalty of $50,000/day against Argentina.  This creates political friction between the United States and Argentina because it is unusual for a court in one country to impose a penalty against another country. Argentina has asked for support from the United States government (the executive branch) against what it believes to be improper actions by the court (the judicial branch).

Below is a video I uploaded:

 

 

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