Policy Implication of Pootovv Tribunal's Jurisdiction Over Sovereign Bonds: Bankruptcy Cram-Down and ICSID Arbitration

Abstract

In May 2013, several bondholders who refused to participate in the 2012 Greek debt restructuring initiated arbitration at ICSID against Greece under bilateral investment treaties. These bondholders contend that they were forced to exchange their bonds for new securities of substantially lesser value and that the forcible exchange was carried out through the newly adopted Greek Bondholder Act that retroactively and unilaterally amended the bond terms by inserting a so-called "Collective Action Clause" ("CAC") into outstanding Greek-law bonds. This Paper analyses the nature of the Greek Bondholder Act and explores the policy implication of the Postova tribunal’s jurisdiction over sovereign bonds. Importantly, it argues that what the Greek Bondholder Act introduced was not an ordinary CAC but something similar to cram-down procedures in bankruptcy law; as a result, in the absence of any bankruptcy rules for States and in order to ensure minimum creditor protection, ICSID arbitration should serve as the forum to develop a safeguard provision for cram-downs employed in sovereign debt restructuring similar to those in the U.S. municipality bankruptcy law.