Belgium has recently passed a new law which administers a cap to limit the amount that so-called ‘vulture funds’ can recover from governmental debt purchased a low prices from wavering economies of countries in severe financial trouble. The law met overwhelming approval from lawmakers and politicians alike, comes on the back of Belgium’s recent decade-long battle with US hedge funds by organizations such as NML Capital Management over their defaulted debt of nearly $1.3 billion.
What are ‘Vulture Funds’?
‘Vulture funds’, known more official as ‘distressed securities funds’ is the name given to investments made by financial investors into debts incurred by a country’s or business’ financial collapse. These debts are bought at low prices on secondary markets, and when the debtor fails to pay back the debt, the investor sues the debtor for a value greater than that which they paid for the debt. In the case of Belgium, these debts were picked up by large US hedge funds who proceeded to sue the country for large sums of money, putting them in further financial strife.
What Will This Law do?
While Belgium cannot ban these vulture funds outright, this law will enact a limit on the amount that can be paid out by a debtor in the case of distressed securities. Additionally, the law would allow Belgian judges to refuse legal decisions made by other countries’ courts. This would prevent organizations from being able to freeze assets and accounts in Belgium, which could harm companies such as Euroclear – a clearing house which deals with a huge number of financial transactions from across the globe. This stipulation comes after a US judge ordered Euroclear in March to block payments which concerned Argentinian bonds and make to notify the hedge funds which were praying on the debt. Under the new law, US judges will be unable to interfere with Belgium’s financial workings. Belgian lawmakers have hailed the new law as a spectacular victory against financial predators, and have stated that the law has been passed despite strong opposition from lobbyists and vested interests, which were defending the interests of US hedge funds.Learn More