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Abstract

States in default of their external debt are forced to resort to sovereign debt restructuring, a form of exchange of bond securities with their private creditors. In the absence of a centralized multilateral mechanism for sovereign default, debt restructuring is the only viable solution to preserve the functioning of the defaulting State as well as the international financial system while equitably protecting the interests of the creditors. While the majority of creditors normally accept such an exchange offer, a small number of them sometimes refuse to do so and instead have recourse to judicial or arbitral means to obtain the full amount of the payment (so-called holdout tactics). While such litigation tactics may disrupt the orderly implementation of sovereign debt restructuring, protection of bondholders should also be ensured in order to preserve the viability of the global financial market for sovereign debt. The question therefore arises as to how to attain an appropriate balance between bondholder protection and respect for sovereign debt restructuring. This study analyses contemporary international and domestic legal instruments and practice relating to sovereign default and examines whether and to what extent these instruments and practice can be reconceptualized as a regulatory framework for sovereign debt restructuring.

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