BP to Escrow $20 billion for Spill Claims

The New York Times reports that BP will escrow $20 billion for spill claims. Depositing funds toward claims would represent a victory for victims of the disaster and the American people, although with costs expected to grossly exceed $20 billion I would view it more as a down payment. If the fund were to be exhausted before all claims are paid, this could turn into another taxpayer bailout.

There is another substantial flaw with this plan. BP will be allowed to deposit the funds over a period of several years, rather than upfront. The logic would be to allow BP to continue as a going concern while earning cash to pay claims.

Undersizing the escrow fund and allowing deposits over a period of years rather than upfront both expose the American public to BP's credit risk and raises the possibility of fraudulent conveyance if BP resumes dividend payments before all claims are paid. Any scenario where BP fails to pay all claims related to the spill is unacceptable and could lead to the American taxpayer footing the bill.

Although the full costs of the spill may not be known for 20 or 30 years as we continue to study its impact, many costs will be immediately identifiable and we need to ensure that funds to pay these claims are available. BP currently has the resources to make a $20 billion deposit and has no right to continue "business as usual" after this rape of the earth and of America. If this deposit causes the company financial distress or forces them into bankruptcy, consider it just punishment. Bankruptcy would likely be a more efficient way to sort out the claims, as many have argued.

[New York Times]