Cuban propaganda and the defense of Cuba at the London court case have labeled CRF I Ltd – holders of the debt demanded by the Díaz Canel government – as a vulture fund to delegitimize and vulgarize this type of company.
The term “vulture funds” – also known as distressed funds or holdouts – has no legal meaning, only a derogatory one. They are venture capital funds that buy debt from economies that are in trouble and on the verge of bankruptcy, and then squeeze and collect their full value; in addition to the interest owed for the years without restructuring. Their field of activity includes both countries with critical financial situation and companies with serious economic problems.
CRF I Ltd does not see itself as a vulture fund, stating that its staff and advisors “have extensive experience in restructuring emerging market debt and have sought to work constructively with Cuba to assist in the restructuring of their debt over a period of many years a way that would be just and mutually beneficial.”
Investment fund CFR I Ltd denies having been involved in Cuba’s debt for immediate enforcement like typical vulture funds. CRF I Ltd has accumulated debts from the archipelago for several years and has shown a desire to reach an agreement with Havana authorities since at least 2013. It was only in 2020 that he decided to go to court in view of the Cuban refusal to negotiate.
According to one of the documents submitted to the London Court on August 6, 2013, CRF I Ltd sent a letter to the Cuban government expressing its desire to become a “long-term partner” and “a restructuring” to strive for fair, rational and equitable for all parties based on established international standards”.
Likewise, in 2018 the London Club, mainly driven by CRF I Ltd, also tried to reach an agreement with Cuba. A wish repeated in 2021 when, after filing the lawsuit in the London court, CRF I Ltd proposed to the Havana government – according to a Bloomberg report – that it convert the $1.4 billion in debt it holds into a zero-coupon bond (includes no periodic interest payments during the life of the bond and trades at a discount to par) with no payments until 2026.
Although the name vulture fund has had some effect in the past (under the Champerty Doctrine argument), the trend has reversed to the point where it is opposed by many countries, particularly the Anglo-Saxon judicial system, such as the UK. The appeal of Cuba’s defense in London to a term like vulture funds only seeks to divert attention from what matters most: its inability to pay a legitimate debt.
The Champerty Doctrine is expressed in Section 489 of the New York State Judicial Code; acknowledges that no person or entity may acquire past due credit documents with the intent or purpose of filing a claim or legal proceeding. However, US jurisprudence has changed interpretation and issued judgments that contradict the arguments of the Champerty Doctrine.
A clear example is the Elliot Venture Fund, owned by Paul Singer. Elliot initiated a lawsuit against Peru in a New York court to recover a portion of the Andean country’s national debt that was in default (non-payment). As part of the trial, Judge Robert W. Sweet declared in 1998 that the debt did exist, but that Elliot was not a valid holder because he committed “Champerty.”
However, the New York State Court of Appeals ruled in favor of the Elliot Fund, overturning the trial decision and thereby the application of the Champerty Doctrine to protect borrowers of venture funds that accumulate government debt.
The Peruvian case served as argument and background for Paul Singer to win another case against the Argentine Republic in 2013. During the litigation, the southern state attempted to use the term vulture fund and the Champerty Doctrine to refuse to pay part of its national debt, holders of which had refused to agree to Argentina with the sole intention of suing in US courts.
Today, access to justice is promoted as a means of conflict resolution. For this reason, the arguments of the Champerty Doctrine have been thrown out in several jurisdictions, among which Australia, Canada and the United Kingdom stand out. In 2013 Lord Neuberger, the UK Chief Justice, said that “access to justice is a right and the State must not stand in the way of people exercising that right”.
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