Category Archives: Governance and Responsibility

Governance and Responsibility – In life of Nation, State, Government, Corporate, Society and Individual

Debt reconstruction of Venezuela Sovereign and PDVSA bond: Legal problem in reconstruction


Shrashank Tripathi, 4th  Year, B.Com LL.B. (Hons.),
Faculty of Law, Dr Shakuntala Misra National Rehabilitation University, Lucknow


Venezuela is one of the most prosperous countries in Latin America for decades, their oil reserve is significantly large in comparison to other countries nevertheless they are currently in the biggest economic crises of the 21 century. Venezuela economy is built on oil, which accounts for more than 90% of country export, 30% of GDP, its foreign reserve and imports of consumer goods are also substantially based on oil exchange. Venezuela former President Hugo Chavez is a firm believer of socialist economy and “Bolivarian revolution” he adopted a new Constitution in 1999 and form favourable fiscal and monetary policy in pursuance of achieving his so-called 21st Century Socialist economy model.

Venezuela is oil abundant country since 1913 and always use its oil resource to leverage its economy, Hugo Chavez was benefited from the oil boom, when he took office in 1999, oil was $10 a barrel and reaching the peak of $133 a barrel in July 2008. On average oil account 60 per cent of government revenue, Chavez spent a substantial amount of government revenue on social welfare scheme and does not invest capital on other industry, he even does not create any sovereign reserve as a backup for oil price crash. When oil price falls sharply in the International market it exposes Venezuela economic mismanagement and drives the country to hyperinflation.

Economic mismanagement is one of the biggest reasons behind Venezuela economic turmoil, Venezuela heavily relies on oil revenue and the government never tries to diversify their economy. Government Nationalization scheme is another reason for the current crises, Chavez administration wanted to get concentrated and unified power on every industry of the economy so they nationalize telecom, oil, agricultural and other major industry. After nationalization after nationalization labour productivity is declined by 59 per cent and corruption is also increased in every sector. Simultaneously Chavez borrowed external debt to fulfil their fiscal deficit and on investment on the social scheme. Chavez sells oil to Caribbean countries on below market price under the PetroCaribe program and also borrowed money against future oil export. Chavez expects oil price will continue to rise in near future and he can negotiate welfare expenses through oil revenue.

When oil price starts declining in the International market, Government revenue is also starting decreasing to fulfil this gap of revenue and expenditure Chavez start borrowing external debt irrespective of the fact that Venezuela does not have any means for the repayment of debt. On 2013 Hugo Chavez dies because of cancer and his successor Nicola Maduro entered into the office, he inherited an economy with many loopholes and with a big problem, rather than solving he inflate problem with the overvaluation of currency and with printing new currency. Venezuela economy is now in debt trap Venezuela debt represent 50 % of international reserve, until recently Maduro Government had committed to repaying its debt in spite of the fact that they have limited resources and foreign reserve, fearing the legal challenges from creditor in US jurisdiction and seizure of Venezuela assets in the United States, including CITGO (oil company owned by PDVSA), oil shipments, and cash payment for oil.

President Maduro on November 2, 2017, announced that they would seek to restructure of its debt, Government would try to restructure their Sovereign bond and PDVSA bond these two bond amount 60 % of the whole Venezuela external debt and restructuring of the same would be a very cumbersome task. Economist speculate that administration will try only to restructure their Sovereign bond, not PDVSA bond because of two reasons firstly Venezuela oil is sold by PDVSA and if in the stage of negotiation any bondholder sue PDVSA then it might affect the whole economy, and secondly Sovereign bond does not have collective action clause that permits a super-majority of holders (75%) to agree to a restructuring and that decision become binding on minority bondholder, so in absence of this clause restructuring of PDVSA bond would inevitably be a messier affair. But my view is contrary, because of several reasons are given below.

If the government goes for the restructuring of PDVSA bond then they had more bargaining power because indentures may be amended with the consent of only with a bare majority of holder, so government had more option and they will also engineer the terms of a new bond (which represent the restructuring condition) as per the requirement of specific bondholder. PDVSA bond also contain change in obligator clause, as per Section 10.02 of PDVSA bond obligation of the payment can be changed with the consent of a simple majority of the holders of each series of bonds, so if some creditor opposed the restructuring process then government may change the obligation for payment from PDVSA to a newly incorporated company let’s call it “New Infra”. Minority bondholder will join the restructuring process seeing that New Infra is an entity that lacks resources to make any payments. PDVSA bondholder also has limited individual enforcement rights, Standard U.S style trust indentures vest the primary responsibility for enforcing the indenture, the exception to this rule is that bondholder only sue for his principal and interest amount only after the due date, the enforcement of accelerated amounts remains the responsibility of the trustee. So PDVSA bondholder sues only on the event of default and only for their respective amount. Taking these things into consideration Venezuela can restructure their PDVSA bond.

The government also needs to restructure their sovereign bond, the good news with sovereign bind is that they have the collective action clause so the decision of the majority of bondholder will be binding on the minority bondholder and they have to agree with the restructuring condition. It is speculated that Venezuela in the restructuring will use the principle haircut technique in the restructuring but in my view, the country economy is not in the situation to leverage the debt so they should ideally go for the extension of the maturity period.

Countries like China and Russia may also impose hurdle in the restructuring process, USA already imposes economic sanction on Venezuela and stop their citizen from accepting any kind of new bond in the restructuring process. Venezuela is going through big economic crises and only recover from this situation if they get financial assistance from international organizations like IMF. Venezuela also needs to apply the process of debt restructuring more wisely.

Email id- (shrashank123 @ gmail.com)

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Happy Diwali

Happy Diwali

Ease of Doing Business Report 2019 – Corporate Law Perspective


Once upon a time falling in the line of World Bank was not fine for at least half of the world. The scenario is changing. There is a rumour that economies not only reforms but also window dress it.

India placed this year at the 77th place with 67.23 EODB scores. Unlike a layman, this EODB score concerns the exports. When we talk about this ranking is a rating of Delhi and Mumbai, not any other place. It might possible other states/cities doing better and not reflected in the report.

“India also focused on streamlining business processes. Under its National Trade Facilitation Action Plan 2017-2020, India implemented several initiatives that improved the efficiency of cross-border trade, reducing border and documentary compliance time for both exports and imports (figure 1.9). Enhanced risk-based management now allows exporters to seal their containers electronically at their own facilities; as little as 5% of shipments must undergo physical inspections. India also invested in port equipment, strengthened management and improved electronic document flow. By implementing the Single Window Clearance System in Delhi and the Online Building Permit Approval System in Mumbai during the second half of 2017, India also continued to streamline and centralize its construction permitting process. Regarding getting electricity, newly-adopted regulations from the Delhi Electricity Regulatory Commission require that electrical connections be completed within 15 days of the application’s acceptance. To comply with this regulation, Tata Power Delhi Distribution deployed more personnel as well as tracking tools and key performance indicators to monitor each commercial connection.” {Page 12}

A print version of the report may be downloaded from here.

SPICe added to the report

The report mentioned that India is among nation who improved by making it easier to start a business. India made starting a business easier by fully integrating multiple application forms into a general incorporation form.

Starting a Business

The starting a business ranking is fairly poor despite mentioning of SPICe in the report. The starting a Business rank among 190 economies is 137. On the scale of 100, the score for incorporation is 80.96. Starting a business in India involves 10 procedures involving 16.5 days. It cost 14.4% of per capita income of Indians. It means it is still not easy to start a formal business for an average Indian. This fact cause concern as there is no legal requirement of minimum capital for a business.

Minority Protection

This is good news. Our ranking is fairly good at 7th place with a score of 80. It can be understood that most economies are not doing fair on minority protection. So, it may not be our best efforts but the poor performance of most economies.

The extent of disclosure index (0–10) 8

The extent of director liability index (0–10) 7

Ease of shareholder suits index (0–10) 7

The extent of shareholder rights index (0–10) 10

The extent of ownership and control index (0–10) 8

The extent of corporate transparency index (0–10) 8

Resolving Insolvency

Insolvency is a very interesting phenomenon presently in India. Our improved rank is 108, a number which Indians love. Insolvency Resolution Score is 81.85. An average time for insolvency resolution is one year presently. This is quite embracing as against the promised 180 days. However, we are facing many practical issues and teething troubles.

Cost of Insolvency resolution is 3.5% of the estate evolved. Recovery rate is 85.3 cent in the Dollar.

In India the establishment of debt recovery tribunals reduced nonperforming loans by 28% and lowered interest rates on larger loans, suggesting that faster processing of debt recovery cases cut the cost of credit.

A recent study using Doing Business data showed that insolvency resolution is one of the main drivers behind “missing” corporate bond markets in many economies. More borrowers gain access to credit in economies with a robust legal system that supports the use of movable assets as collateral and a well-developed credit information sharing system.

Other major reform related to business

India (Delhi) issued a regulation prescribing new electricity charges.

India introduced the Maharashtra Goods and Services Tax Act 2017 and the Delhi Goods and Services Tax Act 2017, which unified all sales taxes into one new tax called the Goods and Services Tax (GST).

Performance on corporate law front

Overall performance on corporate law front is not satisfactory. We can notice that last year insolvency related score and rating were improved due to the introduction of the law. Practical implementation of the same was not so satisfactory. Same is also true for incorporation of a company or starting a business.

Targeted reforms

This is unfortunate that government across economies trying to improve their ease of doing business ranking and not taking a holistic approach on reforms. Various segments which might need attention but not directly related to the ranking are not taken care of.

Anyway it is good to see reforms.

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Effective Provisions of the Companies Amendment Act 2017 w.e.f. 13 June 2018


With Four Notifications; S.O. 351(E) dated 23rd January 2018, S.O. 630(E) dated 9th February 2018, S.O. 1833(E) dated 7th May 2018 and S.O. 2422(E) dated 13th June 2018 most provisions of the Companies (Amendment) Act, 2017 (1 of 2018) come into force. Here is a bird’s eye view.

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Tracking of Directors


After numerous many leakages of sensitive information on faulty governance and unearthing of scam, Government is facing firework from ruling party and its parent organisations. The friendly government of corporate houses with allegedly better relationship with corny – capitalists business organisations, once again looking towards corporate jungle for next round of its killing hunt. As per primary level media reports, Ministry of Corporate Affairs preparing for additional information from directors to nab them at first sounding of the alarm bell. This is in public domain now; government is going to ask passport information of directors who are a citizen of India. This news is bigger than it appears in earlier newspaper reports.
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AishMGhrana BLOG RANKED AS ONE OF THE TOP 40 INDIAN LAW BLOGS


Among Top 40 Indian Law Blogs

Among Top 40 Indian Law Blogs

 We are extremely proud to announce to our readers that this Blog – AishMGhrana Law Governance Responsibility – has been ranked as one of the Top 40 Indian Law Blogs, published by Feedspot. This list is based on, among others, the quality and consistency of posts, social media presence. The entire list can be accessed here.

This blog already among Top Hundred Law blogs globally.

We are extremely grateful to our readers for their encouragement and support, without which we couldn’t have reached here. We hope to perform even better this year and achieve many more milestones.

If you have any suggestions for our blog, please do write to us at aishwaryam_gahrana@yahoo.com

Guest posts are welcome.

Rechristening the ICSI


Like Olympics, world cups and leap year, another thing sure to happen is some party talk around rechristening the ICSI. Usually, this informally happens just before leap year for a single reason already in public. This event occasionally gets formal. There are similar reasons used every time for acceptance and refusal of the exercise. Most company secretaries with humble backgrounds have an issue with term “secretary” and other with restrictive term “company”.

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