This study explores the fragmented contemporary international legal instruments and practice relevant to sovereign defaults and has examined the question of whether and to what extent these instruments and practice can be reconceptualised as a regulatory framework for sovereign debt restructuring.

Given that modern sovereign bonds usually contain the choice of forum clause designating domestic courts to enforce the contractual terms of such instruments, sovereign immunities are among the foremost options for debtor sovereigns to forestall bondholder litigation. This study has concluded that contractual arrangements and statutory provisions on the waiver of immunities represent a fair balance between bondholders’ access to judicial remedies and respect for sovereign debt restructuring. In general, the broad waiver of jurisdictional immunity maintains the option for a holdout, whereas immunity from measures of constraint may prevent eventual enforcement against the assets held by defaulting sovereigns. Such a consequence does not unduly undermine the interests of bondholders, insofar as holdout strategies are envisaged in practice to gain leverage in a debt restructuring negotiation rather than to enforce contractual rights through litigation. In addition, an option of a stay of proceedings available in some jurisdictions may provide a basis for the courts to indirectly regulate the progress of sovereign debt restructuring by imposing and lifting a stay of proceedings.

The next battleground involves the admissibility of sovereign bond claims in investment treaty arbitration, which emerges as a complicated issue particularly when a large group of bondholders bring a case as a bundle against the debtor sovereign. To attain an appropriate balance between bondholder protection and respect for orderly debt restructuring, this study has conceptualised investment arbitration proceedings as a supplemental leverage available for bondholders as a group by which a stay of arbitral proceedings is imposed and lifted amid the fair progress of sovereign debt restructuring processes.

This study has pursued a balance between bondholder protection and respect for sovereign debt restructuring at various stages of litigation and arbitration proceedings. An appropriate balance inevitably depends on the context and circumstances of specific cases and cannot, by its nature, be articulated in a precise manner. Instead, the present study has pursued a framework within which an appropriate balance may be explored and attained in specific cases. Such a framework is constructed by applicable contract, statutory and treaty provisions to be interpreted in a manner that certain deference is paid to debtor sovereigns’ policy decision-making during debt restructuring and that the chance of checks and balances by courts or tribunals is ensured.

Even if sovereign immunities fail to prevent holdout litigation before a domestic court, bondholder claims may still be effectively forestalled by the operation of collective action clauses. The limits of first-generation CACs have been partially overcome, and their use in sovereign bonds is now common in the United States and is mandatory in the Eurozone. This strengthened protection for debtor sovereigns is accompanied by the introduction of accountability mechanisms that guarantee fairness in the implementation of debt workout processes. This study has concluded that the development of CACs embodies a possible balance between bondholder protection and respect for debt restructuring by sovereigns. Although a more delicate question arises when a defaulting sovereign introduces a CAC mechanism by modifying the relevant domestic law governing sovereign debt instruments, such a measure may fall within the margin of discretion exercised by the debtor sovereign as the governance organ primarily responsible for addressing its sovereign default, provided that its accountability is duly discharged in and out of courts or tribunals.

The pari passu clause in modern sovereign debt instruments may be interpreted and implemented in a manner that it constitutes part of the regulatory framework of sovereign debt restructuring. A careful reading of the NML saga revealed that US courts did not necessarily endorse the so-called ratable payment interpretation in rejecting the legal ranking interpretation; the US courts introduced ratable payment as a matter of injunctive relief for the violation of the pari passu clauses by Argentina and did not provide it as a proper interpretation of the clauses. Alternatively, this study has endorsed a third interpretation of the pari passu clauses according to which these clauses provide additional but limited protection from unfair discrimination among bondholders by the debtor sovereign in the process of debt restructuring. This interpretation may represent an appropriate balance between bondholder protection and respect for debt restructuring. In addition, the ratable payment as injunctive relief can be conceived as a regulatory implementation of pari passu clauses addressing a particular serious category of the breach of sovereign bond contracts.

The relevance of broader public policy considerations in the sovereign debt discourse cannot be ignored given the rise of the perception of sovereign default as a global concern. Recent literature tries to introduce a public law or policy perspective into the sovereign debt discourse, such as the theory of international public authority, l’ordre public de la dette souveraine and an incremental approach. As a matter of judicial interpretation, however, public policy arguments as such cannot override the text of the contract or treaty provisions in force. A better approach will thus be to examine whether and to what extent the applicable contract, statutory and treaty provisions afford such public policy considerations through interpretation in such a manner that practical solutions to holdout problems are deduced without losing the balance between bondholder protection and respect for sovereign debt restructuring.