Question the Unquestionable Beauty of a Collective Proceeding for All Sovereign Debt Claims

Abstract

How would the sovereign debt community react to NML Capital Ltd. decision?To date, nearly all literature on sovereign debt issues has focused on deterring holdout behavior in foreign bonds restructuring, from a majority voting system to a stay on enforcement. However, the NML Capital Ltd. decision is likely to shift the attention from holdout behavior to inter-creditor relations, which is considered to be one of the key elements of an effective insolvency law.The status quo of inter-creditor issues presents an ambiguous picture and leaves a number of issues wide open such as the scope of priority claims, the relationship between multilateral, bilateral and commercial creditors, and the status of new financing. Having acknowledged the challenges involved in discussing all open issues about inter-creditor relations at once, the author intends, in this paper, to focus on the relationship between multilateral, bilateral and commercial creditors. The author starts with various proposals touching upon this issue and the different views expressed, ranging from equal treatment to separate treatment to comparable treatment. While studying these different views, the author notices that nearly all proposals envisage a “collective” proceeding that would include “all” sovereign debt claims without explaining any reasons for such a vision, partly because this is the form that all national bankruptcy proceedings take. The main purpose of this paper is to take the unusual route of questioning the unquestionable beauty of a collective proceeding for all sovereign debt claims.