Volume 4, Issue 2 -

Among various attempts to achieve swift and orderly sovereign debt restructuring (“SDR”), the approach to include collective action clauses (“CACs”) in bond contracts has been widely adopted. CACs are expected to reduce the holdout litigation risk as they allow a specified supermajority of creditors to impose changes to the restructuring terms on holdout creditors. Meanwhile, SDR faces a new challenge in the sphere of the law on foreign investment: recent investment arbitration tribunal decisions on SDR opened the gate to investment treaty arbitration for holdout creditors. Investment arbitration has potential to surpass the contractual restrictions set by CACs and therefore undermine the primary purpose of CACs to reduce the risk of holdout litigation. This may cause delay in the SDR process, which is not in the best interest of either the creditors or the debtor state’s economic recovery. The protection of foreign investments should be, therefore, balanced against the need for a swift SDR. Against this background, this article argues that a way to achieve the balance is to set limits on the use of investment treaty arbitration by holdout creditors, and defaults and restructurings of international bonds and/or the implementation of CACs should be excluded from the scope of investment treaty arbitration. This is because while liabilities under investment treaties arise from the exercise of sovereign power of the host state, such acts do not constitute acts of a sovereign with respect to the bondholders but remain in the realm of commercial transactions. To demonstrate this, this article first examines the distinction between acta jure gestionis and acta jure imperii, which has been developed in the context of the doctrine of restrictive state immunity, and finds that issuance and default of international sovereign debts have been treated as commercial activities by English and US courts, the two major dispute settlement forums for disputes arising from international sovereign bonds. Bearing in mind the difference between (a) the question these courts face (i.e. whether they have jurisdiction over contractual claims) and (b) the question before investment treaty arbitration (i.e. whether there are treaty claims to be protected by investment treaties), this article then argues that investment arbitration tribunals should reach the same conclusion as to the nature of the host state’s acts concerning international sovereign bonds/implementation of CACs. The criterion to delimit the boundaries is therefore as follows: the protection under investment treaties should not be extended to situations where the creditors’ rights are not subject to the exercise of the sovereign power of the debtor state, and where the relevant acts in the SDR process are the good faith implementation of CACs included in the original bond terms. It is hoped that the theory proposed by this article helps both SDR and the investment treaty regime to operate in harmony, without compromising each other’s interests.

In Israel, the summer of 2011 will be remembered as the summer of social protestation. Steadily increasing food prices that showed no sign of abating motivated people across the nation to voice their discontent in massive weekly protests attended by thousands. As the movement gathered momentum and the impacts of the protests increased, it caught the attention of policy makers, food manufacturers, and food channel retailers. In this article, we show how certain important events during this summer negatively affected the price of food retailers’ stocks. We also show that a proper response to the events by retailers targeted by the protestors prevented their stock from falling. We show that a proper response of one retailer converted the goal of protestors and increased its market value.

Enlightened shareholder wealth maximization – long-term thinking about improving and perfecting the corporation’s products and services that translates into sustainably increased future cash flows – has almost entirely given way to an overzealous focus on short-term stock performance. This commentary synthesizes a few basic concepts before this backdrop: (1) Any theory that suggests the solution rather than a solution is bound to fail because people will learn to game it. It is more appropriate to have a number of theories – including shareholder wealth maximization – to take from the shelf and apply as needed. (2) All major corporate stakeholders exercise their often significant power over corporate affairs to their financial benefit. (3) Shareholders are not always the residual claimants of a corporation’s assets because, for example, of bankruptcy or regulation.

This is a book review for Accounting for Value . The book draws upon “Ten Commandments” instead of boring accounting jargon. Its unique value is based on renewed valuation formula to interpret the usefulness of fundamental accounting information that is consistent with historical cost accounting.

“Accounting for Value” by Stephen Penman is thought-provoking in its challenge to mainstream in both finance and accounting. This fosters a reflection on models and tools employed for valuation. Some points about the book should be underlined. Penman states that he adheres to finance theory principles, but he moves away from them, as he offers a complete reinterpretation of such principles from a fundamentalist perspective. He also puts a distance between the finance theory approach and his own. Value is about business, he says, not about paper. The finance approach is focused on paper (stocks, bonds) and neglects business. Knowledge about business and prudence should be adopted by analysts in order to challenge market prices and find profit opportunities. Accrual accounting should be used instead of the discounted cash-flow approach, he says, and therefore “accounting for value” is not only about value but about accounting too. However, Penman argues, good accounting is not the one currently proposed by accounting standards.