Who can extend the statute of limitations (SOL) for Venezuelan financial debt?

José Ignacio Hernández G. / 11-10-2023

Source: Reuters

The statute of limitations problem concerning the financial debt of the Republic has not yet been solved. The IV legislature of the National Assembly must determine the constitutional framework applicable to the extension of the limitations. And bondholders must ensure that this solution complies with the formalities of Venezuelan Public Law.

The six-year statute of limitations (SOL) that applies to Venezuelan bonds governed by New York Law has already begun. At the end of 2017, the Maduro Government suspended interest and principal payments on the bonds, except for the PDVSA 2020 Notes, which were issued with unconstitutional collateral over Citgo Holding, Inc.’s shares. Since then, there have been several unfulfilled promises of a debt restructuring process.

The 2017 U.S. sanctions did not trigger the debt crisis because “financial markets had effectively shut Venezuela out well in advance of that date“. In addition to the economic collapse caused by predatory policies, Maduro decided to repudiate the IV legislature of the National Assembly, which constitutional control was necessary to advance an orderly debt restructuring process. 

The legal situation evolved after the U.S. Government recognized the speaker of the National Assembly as interim president between January 23, 2019, and January 3, 2023. During this time, the speaker was acknowledged as the exclusive executive official representing the Republic in the U.S., particularly concerning Venezuelan bonds. However, in 2023, the National Assembly eliminated the interim president post in the new Transition Statute. Consequently, despite political support for the IV legislature, a legal vacuum emerged regarding the representation of Venezuela.

Maduro attempted to take advantage of the confusion by unilaterally tolling the SOL in March 2023. However, because Maduro’s government is not recognized, this decision has no binding consequences in the U.S. Nevertheless, without an interim president with the authority to represent the Republic, there was no apparent authority to extend the SOL from the IV legislature’s side.

In August 2023, the IV legislature approved a resolution to extend the SOL until 2028. However, from a Constitutional Law perspective, the Legislative Branch does not have the authority to represent the Republic in financial debt matters; that authority is vested in the Presidency (Art. 236.11, Venezuelan Constitution). While the New York Law applies to the bonds’ obligations, the Venezuelan Public Law applies to the issuer’s capacity, including the Republic’s ability to modify the SOL. Under the Venezuelan Public Law, only the Presidency, not the Legislative Branch, has the authority to toll the SOL on Venezuela’s bonds.

The authority of the Presidency is not affected by General License No. 42, which authorized the IV Legislature to negotiate “settlement agreements.” This license is only relevant in U.S. Law but cannot grant the IV Legislature competencies not established in the Constitution. Therefore, the license could only apply to the executive officers appointed or designated by the IV Legislature.

The key issue is identifying the executive officer who, under the IV Legislature’s authority and by constitutional provisions, can legally represent the Republic and extend the SOL. However, this official’s identity remains unclear.

As explained, based on the 2023 Transition Statute, the speaker no longer holds the constitutional title of interim president. The Transition Statute created a parliamentary commission called the “Commission for the External Assets Protection,” which cannot exercise the authorities vested by Art. 236 of the Venezuelan Constitution in the Presidency. Therefore, this Commission cannot legally represent the Republic either.

In one of the many litigation cases in the U.S. related to Venezuelan external debt, the Republic was served in March 2023 by a diplomatic note received by the “Presidential Commissioner for Foreign Relations of the Bolivarian Republic of Venezuela,” an “accredited representative put forward by the National Assembly.”

The problem is that the appointment of such a “Presidential Commissioner for Foreign Relations of the Bolivarian Republic of Venezuela” has not been published in the Legislative Gazette. The post is not established in the Democratic Transition. Without a valid appointment under Venezuelan Constitutional Law and unclear statutory powers, any decision made by this “Presidential Commissioner” regarding the SOL could be null and void.

Despite growing engagement with the Maduro government, the United States continues recognizing the IV Legislature as the legitimate authority. As a result, the Maduro government cannot represent the Republic and extend the six-year prescription unless the U.S. President formally recognizes Maduro as the Venezuelan President.

The expiration of the SOL increases the risks associated with Venezuela’s unsustainable financial debt contracted during the governments of Hugo Chávez and Nicolás Maduro. If the SOL is not extended following Venezuelan Public Law andU.S. Law, creditors may be forced to file claims to preserve their rights. To avoid this inefficient solution, the IV legislature must determine, following the principles of transparency and accountability, the executive officer with the authority, according to Venezuelan Public Law, to extend the SOL regarding the Republic’s debt. At least until the U.S. Government maintains the current recognition policy.