The impact of investment treaties on companies, shareholders and creditors

It is seven years since the global crisis and despite easy monetary policy, financial regulatory reform, and G20 resolutions favouring structural measures, the world economy is not making a lot of progress. Indeed, the responses to the crisis seem mainly to have stopped the banks from failing and then pushed the many faces of the crisis around between regions—currently taking the form of excess capacity in emerging markets. Productivity growth raises income per head, allows companies to pay better wages and it raises demand to help to eliminate excess capacity and improve employment. However, this element is missing in the global corporate sector. The theme of this year’s Business and Finance Outlook is fragmentation: the inconsistent structures, policies, rules, laws and industry practices that appear to be blocking business efficiency and productivity growth.

Investment treaties are concluded between two or more governments and typically offer covered foreign investors protection for their investments from host government conduct in violation of the treaty such as expropriation without compensation, discrimination or treatment that is not “fair and equitable”. This chapter identifies the unique combination of rules applied under many investment treaties which includes rules about the types of loss recoverable by shareholders covered by treaties and about the availability of damages for covered investors in claims against governments. The chapter considers the incentives created by these rules and how they may affect companies, shareholders, creditors and capital markets. It also considers how those incentives may affect corporate structuring of investment.