Chapter I. The Contractual Approach

Abstract

The core objective of the contractual approach - like that of the statutory proposal - is to facilitate reorganisation of sovereign debt by making it easier for debtors and creditors to negotiate a deal. To this end, the promoters of the contractual approach suggest changes in policy emphasis and an augmented 'toolbox' of contractual clauses. Those tools are primarily collective action clauses (CACs) and exit consents. Exit consents are a kind of reduced CAC, since they only apply to a restricted area of bond clauses. This chapter describes the use of collective action clauses and exit consents in general under the legal systems which, for the purposes of this study, are most important, i.e. England and New York. Then, it analyzes the possibility of a transfer of these instruments to sovereign bonds. The chapter discusses the challenges to be met by CACs and how these operate in practice.Keywords: bond clauses; collective action clauses (CACs); contractual approach; exit consents; sovereign bonds; sovereign debt