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INVESTORS’ PROTECTION

INVESTORS’ PROTECTION. Mr Guy HARLES. Double protection for the investors . Investors’ protection is an important issue given the role played by investors in enhancing the development of the global economy. Focus on two mechanisms of protection based on different legal concepts:

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INVESTORS’ PROTECTION

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  1. INVESTORS’ PROTECTION Mr Guy HARLES

  2. Double protection for the investors Investors’ protection is an important issue given the role played by investors in enhancing the development of the global economy. Focus on two mechanisms of protection based on different legal concepts: I. Bilateral Investment Agreements protection by means of the international law and diplomatic relations between States II. Private and Public Credit Insurance protection by means of the mitigation of the risk of political and economic instability in the host countries

  3. I. Bilateral Investment Agreements (1) • Bilateral Investment Agreements (BIAs) are the very common, international instruments set up to foster the process of liberalisation of the global economy and to guarantee the protection of the investors from the signatory countries. • In legal terms, a BIA is an international treaty negotiated and concluded by two sovereign States expressing the will to place the investments made by the investors of one signatory State on the territory of the other signatory State under the protection of the international law and their diplomatic relations. • Luxembourgish perspective on BIAs is particular, because all Grand-Duchy’s Investment Agreements are signed within the frame of Belgium-Luxembourg Economic Union (BLEU). • BLEU is an economic and monetary union created by the Treaty establishing the Belgium-Luxembourg Economic Union signed on 25 July 1921 and amended lastly on 18 December 2002. • The Article 31 of the abovementioned Treaty states that all the treaties regarding the economic interests of Belgium and Luxembourg, (including BIAs), are common for both countries. • Consequently, to date, the Belgium-Luxembourg Economic Union has signed 82 Bilateral Investment Agreements with different countries all over the world including 26 African States: Algeria, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Comoros, D.R. Congo, Côte d’Ivoire, Egypt, Ethiopia, Gabon, Liberia, Libya, Madagascar, Mauritania, Mauritius, Morocco, Mozambique, Rwanda, South Africa, Sudan, Togo, Tunisia, Uganda and Zambia (as of May 2013)

  4. I. Bilateral Investment Agreements (2) • BIAs are intended principally to promote and protect investments between two States. They aim to provide investors with guarantees for maximum protection and have generally a similar content including schematically: • broad definition of the main concepts contained in the agreement such as: “investor”, “investment”, “territory” etc., • general principles for the non-discriminatory treatment and the protection of investments as the principle of national treatment, the most favoured nation clause and the principle of fair and equal treatment, • reference to labor and environment law bymeans of social and environmental clause, • guarantee for the free transfer of income andthe duty of compensation for any deprivation of property, • system for the settlement of disputes and the use of international arbitration. BIAs are therefore a very important tool for the protection of investors. The proof of the popularity thereof is the fact that there are currently more than 2.850 different BIAs signed worldwide. However their role is becoming less significant today with the regionalisationof the world economy: creation of the new Free Exchange Zones and the regional economic integration organizations.

  5. II. Protective role of private and public credit insurance (1) • Credit insurance is a different type of protection for the investors which is not rooted in the international public law, but in the investors’ autonomous will to be protected, expressed by the subscription of an credit insurance policy. • The institution of credit insurance relies on an insurance policy established by private or public credit insurance company or agency designed to protect international investors from the risk of non-payment or insolvency of their foreign contractors or partners. • This is also an instrument for the mitigation of political risks including currency issues, political instability, expropriation etc.essential in emerging countries marked by the political and legal uncertainty and frequent arbitrary government decisions. • Among the most important credit insurers in Europe are GermanprivateinsurerEULER HERMES, French privateCOFACE, British public ECGD,Italian public export agencySACE or Belgian public Office national du Ducroire (ONDD). • In Luxembourg thisroleisplayed by the Office du Ducroire (ODL).Created in 1961, it is a public institution designed to support Luxembourg exporters while trading internationally and Luxembourg investors while investing abroad - mainly by providing credit insurance.

  6. II. Protective role of private and public credit insurance (2) • From the practical point of view various types of investments may be insured e.g. an equity creation or participation in a foreign company (either in cash or in kind) or investment loans with long-term repayment terms etc. • In Luxembourg, the investor may be insured for full or partial loss of the investment but also for not being able to transfer the invested funds out of the host country, provided however, that the losses are the direct consequence of one of the following events: • expropriation(including nationalization, confiscation and any government discriminatory decision taken against investors or companies in the host country), • war, • money transfer restrictions rendering impossible any transfer of invested funds from the host country, • breach by the host country’s authorities or by state-controlled entities of the contract signed by the latters with the insured investor, including the non-fulfilment or non-compliance with contractual obligations. • Furthermore so as to qualify for reimbursement, the loss must be final and irreversible.  • Additionally, the insurance may be extended to the investment income (interests and dividends) as well as to potential further investments. Credit insurance plays thus an important role in facilitating international trade and constitutes an efficient protection for investors willing to undertake an activity on unstable markets. Eventually, it may financially substitute or complete the public frame for the investors’ protection set up by the Bilateral Investment Agreements.

  7. Thank you for your attention 7

  8. Contact us • Guy Harles • Partner • Corporate Law, M&A • Tel : (352) 40 7878 204

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