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Abstract
The history of sovereign debt lending and borrowing goes back to ancient times. Sovereigns borrow money for reasons similar to individuals. The vital difference between the two however, is one of recovery. Unlike individuals, a sovereign's assets may not be seized and liquidated for recovery of debts. In the absence of an international consensus on how to restructure debt, several techniques and methods have been created and suggested by diverse groups. Many Important changes have ensued and a trend of litigation has also evolved in the past couple of decades.
While sovereign debt restructuring has almost always stirred a debate in the realm of economics, certain important legal issues and aspects also deserve to be highlighted.
Keywords: Sovereign Debt Restructuring, Paris Club, Bondholders, SDRM, Collective Action Ckuse, Sovereign Immunity, Vulture Funds.
1. INTRODUCTION
Historical evidence shows that sovereign debt borrowing and lending was in practice since time immemorial. Sovereign debt lending increased immensely in the past few hundred years and is a popular practice today. And with the coming of each sovereign debt crisis comes to the forefront the concern over the lack of a universally binding legal mechanism for resolving the crisis. While an overwhelming majority of the literature available on sovereign debt restructuring is based on the economic aspects of the subject, the legal aspects involved in sovereign debt restructuring are equally important. Sovereigns have been borrowing through a significant part of the past century and will continue to do so. In this process myriad legal aspects related to sovereign debt restructuring crop up. This paper, therefore, chooses to focus on them.
2. HISTORICAL BACKGROUND
Borrowing of international loans has been in practice since time immemorial. The earliest recorded instance of such sovereign borrowing and default in repayment of the debt can be traced back to the fourth century B.C., when ten out of thirteen Greek municipalities in the Attic Maritime Association defaulted on loans from the Délos Temple.1 In the middle ages, the emergence of Italy as a major banking centre in Europe fuelled international borrowing within the continent and banks remained the main source of credit during the period. The European kings of the era were rarely out of debt2. A more or less sustained trend of international...