The International Law of Sovereign Debt Dispute Settlement

The book proposes ways to regulate holdout litigation without undue expense of bondholders remedies by balancing bondholder protection and sovereign debt restructuring.

Format: Hardback
Length: 304 pages
Publication date: 22 September 2022
Publisher: Cambridge University Press

The first two decades of the twenty-first century were marked by a series of significant sovereign defaults and debt restructurings, as sovereigns grappled with recalcitrant bondholders, particularly hedge funds. Additionally, the outbreak of the COVID-19 pandemic in 2020 brought forth a challenging financial landscape for many developing and emerging market countries, necessitating sovereign debt restructuring amidst great macroeconomic uncertainty.

However, the absence of a multilateral mechanism akin to a domestic corporate bankruptcy system for sovereign debt restructuring has led to defaulted sovereigns facing protracted holdout litigation from bondholders. This book aims to propose regulatory measures that balance bondholder protection and respect for sovereign debt restructuring at various stages of litigation and arbitration proceedings, without incurring undue expense for bondholders' remedies.

The challenges posed by sovereign defaults and debt restructurings are multifaceted. Defaulted sovereigns often face financial instability, reduced creditworthiness, and economic downturns, making it difficult for them to service their debt obligations. Additionally, bondholders, who are typically investors seeking to maximize returns, may engage in litigation to protect their interests, prolonging the restructuring process and potentially exacerbating the sovereign's financial woes.

One of the key issues in sovereign debt restructuring is the balance between protecting bondholders' interests and respecting the sovereign's right to debt restructuring. While bondholders are entitled to repayment of their investments, sovereigns also have the right to address their financial challenges and restore economic stability. Striking a balance between these two competing interests is crucial to ensure the long-term viability of the sovereign and the stability of the financial system.

The book proposes a range of regulatory measures to address these challenges. These include the establishment of a multilateral framework for sovereign debt restructuring that provides a clear and transparent process for defaulted sovereigns to negotiate with their creditors. The framework should include provisions for debt restructuring, such as interest rate reductions, repayment extensions, and asset swaps, to ensure that bondholders receive fair treatment while preserving the sovereign's ability to repay its debt.

Furthermore, the book suggests the development of alternative dispute resolution mechanisms, such as arbitration and mediation, to facilitate the resolution of sovereign debt disputes. These mechanisms can be faster and less expensive than traditional litigation, and can help to avoid prolonged legal battles and minimize the expense for all parties involved.

In addition, the book proposes measures to enhance bondholder protection and transparency. This includes the establishment of a sovereign bondholder association that can represent the interests of bondholders and provide information on the status of sovereign debt restructurings. The association can also work to promote best practices among bondholders and issuers, and to advocate for regulatory reforms that enhance bondholder protection.

Furthermore, the book suggests the development of a sovereign debt restructuring framework that incorporates international standards and best practices. This framework should be based on a comprehensive assessment of the sovereign's financial situation and should include measures to ensure that the restructuring process is fair, transparent, and equitable.

Finally, the book emphasizes the importance of international cooperation and collaboration in sovereign debt restructuring. Defaulted sovereigns often face cross-border debt obligations, and a coordinated approach is necessary to address these challenges effectively. International organizations, such as the International Monetary Fund (IMF) and the World Bank, can play a crucial role in providing technical assistance and policy advice to sovereigns and creditors, and in promoting international standards and best practices in sovereign debt restructuring.

In conclusion, the first two decades of the twenty-first century witnessed a series of significant sovereign defaults and debt restructurings, as sovereigns grappled with recalcitrant bondholders and the COVID-19 pandemic. The absence of a multilateral mechanism for sovereign debt restructuring has led to defaulted sovereigns facing protracted holdout litigation from bondholders. This book proposes regulatory measures that balance bondholder protection and respect for sovereign debt restructuring at various stages of litigation and arbitration proceedings, without incurring undue expense for bondholders' remedies. By establishing a multilateral framework for sovereign debt restructuring, developing alternative dispute resolution mechanisms, enhancing bondholder protection and transparency, incorporating international standards and best practices, and promoting international cooperation and collaboration, we can help to ensure the long-term viability of defaulted sovereigns and the stability of the financial system.

Weight: 702g
Dimension: 158 x 237 x 27 (mm)
ISBN-13: 9781009250023