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US appeals court ruling reassures lenders that contract terms have teeth

When Argentina announced a bond restructuring a few years ago, there were several American creditors who spurned the exchange. Fearing that they may lose on their investment, these creditors held out on the country, some even pointing out that there was little mention of bond restricting in the country's contract in the first place.

Though South America's second largest country had contractual obligations with these creditors, for the past decade, Argentina has "thumbed its nose" at the affiliate of Elliott Associates and other creditors who held out on the exchange. They've even passed laws prohibiting future payments to these creditors.

But in a unanimous ruling, a three-judge panel decided that these laws, as well as statements in some official documents, breached Argentina's promise of equal treatment. The ruling ensures that any payments made to current exchange-bond holders must also be paid to Elliott's affiliate as well.

Many experts are calling this a "powerful way for creditors to enforce debtor nations' obligations" while also providing reassurance that contracts between foreign nations will not only be upheld but can have serious consequences if broken.

Some critics of the courts' decision say that it violates U.S. law that bars courts from grabbing foreign assets. But according to many business law experts, the decision merely holds Argentina to its contract.

Though some people may understand the complicated nature of international transactions, for the majority of people in Texas, and across the nation, this area of business law continues to be a complete mystery. Getting into negotiations without fully understanding all the terms and agreements can have serious consequences down the road. That is why business owners are always encouraged to speak with someone experienced in this area so as to prevent any possible legal troubles in the future.

Source: Thomson Reuters News & Insight, "Breakingviews: Rule of law finally catches up to Argentina," Reynolds Holding, Oct. 29, 2012