Brooklyn Law Review


The Second Circuit’s ruling in NML Capital, Ltd. v. Republic of Argentina, a case in which wealthy creditors sued Argentina for the repayment of defaulted debt bonds under New York law, sought to prevent Argentina from paying back creditors that accepted restructured bonds unless it also paid back holdout bondholders equally. This decision was the subject of much criticism and scholarly debate because it was one of the first instances of a court granting specific performance based on a pari passu, or equal footing, clause. While the court hoped that the creative relief would pressure Argentina into paying back both restructured and holdout bondholders alike, it now seems that the decision was counterproductive. An exploration of the implications of the NML Capital decision and Argentina’s resulting default is essential in evaluating a sustainable global framework for future disputes between sovereign creditors and sovereign debtors. There are three main scholarly proposals for ameliorating holdout litigation in foreign debt restructuring that are inadequate when considered in isolation. This note proposes an international restructuring court as a solution to the problem of unsuccessful sovereign debt restructuring that combines elements of the three previous proposals in a new way: an international restructuring court that enforces an international restructuring code. This international restructuring regime would be best equipped to solve the seemingly unsolvable problem of restructuring sovereign debt after the recent Argentina saga. Ultimately, this hybrid solution would prevent holdout litigation on existing debt while also establishing an efficient and functional framework for restructuring future debt and protecting other sovereign nations from the pitfalls of the Argentine approach. If a legally enforceable remedy binding all international debtors to comply with an efficient restructuring plan is not instituted soon, sovereign debt will remain just that: sovereign.