Social and Behavioral Sciences Commons^™

Courts And Sovereigns In The Pari Passu Goldmines, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

U.S. federal court rulings against Argentina since 2012 have turned the pari passu clause in sovereign bond contracts into the most promising debt collection tool against immune governments since the days of gunboat diplomacy. The large literature on pari passu (“equal step” in Latin) assumes that the clause had not been used for enforcement before the late 1990s, and that it was first construed by a Belgian court in a case against Peru in the year 2000. The Belgian decision was criticized for wrongly concluding that pari passu promised ratable payment to all holders of Peru’s external debt. A decade …

Contract Hope And Sovereign Redemption, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

Sovereign immunity has served as a partial substitute for bankruptcy protection, but it has encouraged a minority of creditors to pursue unorthodox legal remedies with spillover effects far beyond the debtor-creditor relationship. The attempt to enforce Argentina’s pari passu clause in New York is an example of such a remedy, which relies primarily on collateral damage to other creditors and market infrastructure to obtain settlement from a debtor that would not pay. The District Court decision, now on appeal before the Second Circuit, may not make holding out more attractive in future restructurings – but it would make participation less …

Financial Crisis Containment, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

This Article maps financial crisis containment - extraordinary measures to stop the spread of financial distress - as a category of legal and policy choice. I make three claims.

First, containment is distinct from financial regulation, crisis prevention and resolution. Containment is brief; it targets the immediate term. It involves claims of emergency, rule-breaking, time inconsistency and moral hazard. In contrast, regulation, prevention and resolution seek to establish sound incentives for the long term. Second, containment decisions deviate from non-crisis norms in predictable ways, and are consistent across diverse countries and crises. Containment invariably entails three kinds of choices: choices …

Building A Better Seating Chart For Sovereign Restructurings, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

Every sovereign debt restructuring in recent memory has wrestled with the problem of inter-creditor equity. Governments have discriminated among creditors in ways that were hard to predict and often were not revealed until after a debt default. In contrast, debts of firms, individuals and even localities are ranked in order of priority established by contract and statute. This ranking is known at borrowing, generally corresponds to the order of repayment in bankruptcy liquidation, and helps define the creditors' relative bargaining power in reorganization. Without a bankruptcy backstop, most debts of national governments are legally equal. Yet in practice, sovereign immunity …