May 14, 2020

International Lending

International Lending

Lending to Canadians: Issues for Foreign Lenders
      Robert P. Hutchison, 41(2): 393–411 (Feb. 1986)
This Article reviews some Canadian legal issues that arise in loan transactions between foreign lenders and Canadian borrowers. The commercial legal aspects of loans to Canada generally reflect the conventions of jurisdictions that historically have been sources of capital to Canada. The laws of Canada and its provinces contain several provisions of which foreign lenders to Canada should be aware.

Toward Facilitating Cross-Border Secured Financing and Securitization: An Analysis of the United Nations Convention on the Assignment of Receivables in International Trade
      Harry C. Sigman and Edwin E. Smith, 57(2): 727 (Feb. 2002)
The United Nations Convention on the Assignment of Receivables in International Trade has recently been adopted and is now open for signature. The Convention promulgates substantive and choice of law rules that will, if the Convention becomes effective in a sufficient number of countries, significantly improve the feasibility of cross-border transactions involving the assignment of receivables. The Convention will achieve this by reducing or eliminating obstacles to efficient commercial practices and by providing greater certainty on many issues. The authors explain the Convention's provisions and discuss relevant provisions of Revised U.C.C. Article 9 to facilitate comparison and to assist counsel to understand how the Convention might affect transactions having a U.S. connection.

Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications, and Reforms
     Henry T. C. Hu and Bernard Black, 61(3):1011–1070 (May 2006)
Most American publicly held corporations have a one-share, one-vote structure, in which voting power is proportional to economic ownership. This structure gives shareholders economic incentives to exercise their voting power well and helps to legitimate managers' exercise of authority over property the managers do not own. Berle-Means' "separation of ownership and control" suggests that shareholders face large collective action problems in overseeing managers. Even so, mechanisms rooted in the shareholder vote, including proxy fights and takeover bids, constrain managers from straying too far from the goal of shareholder wealth maximization.

In the past few years, the derivatives revolution, hedge fund growth, and other capital market developments have come to threaten this familiar pattern throughout the world. Both outside investors and corporate insiders can now readily decouple economic ownership of shares from voting rights to those shares. This decoupling—which we call "the new vote buying"—is often hidden from public view and is largely untouched by current law and regulation. Hedge funds, sophisticated and largely unfettered by legal rules or conflicts of interest, have been especially aggressive in decoupling. Sometimes they hold more votes than economic ownership, a pattern we call "empty voting." That is, they may have substantial voting power while having limited, zero, or even negative economic ownership. In the extreme situation of negative economic ownership, the empty voter has an incentive to vote in ways that reduce the company's share price. Sometimes hedge funds hold more economic ownership than votes, though often with "morphable" voting rights—the de facto ability to acquire the votes if needed. We call this "hidden (morphable) ownership" because under current disclosure rules, the economic ownership and (de facto) voting ownership are often not disclosed. Corporate insiders, too, can use new vote buying techniques.

This article analyzes the new vote buying and its corporate governance implications. We propose a taxonomy of the new vote buying that unpacks its functional elements. We discuss the implications of decoupling for control contests and other forms of shareholder oversight, and the circumstances in which decoupling could be beneficial or harmful to corporate governance. We also propose a near-term disclosure-based response and sketch longer-term regulatory possibilities. Our disclosure proposal would simplify and partially integrate five existing, inconsistent share-ownership disclosure regimes, and is worth considering independent of its value with respect to decoupling. In the longer term, other responses may be needed; we briefly discuss possible strategies focused on voting rights, voting architecture, and supply and demand forces in the markets on which the new vote buying relies.

Massey Prize for Research in Law, Innovation, and Capital Markets Symposium—Foreword
     70(2): 319-320 (Spring 2015)

Cross-Border Closing Opinions of U.S. Counsel
     Legal Opinions committee, ABA Business Law Section; 71(1): 139-226 (Winter 2015/2016)