State insolvency — what bondholders and other creditors should know

Practically every aspect of financial law is regulated and controlled to the highest degree. Not so state insolvency.

When a state becomes bankrupt, there are no bankruptcy laws. There is no regulation of the insolvency. There are no stays on creditors, no realisations of the assets, no compulsory disclosure of financial condition, no cram-downs, no fraudulent preference claw-backs, no formal priorities, no punishment of the management, no bankruptcy courts, no judges, no procedures. Nothing.

Well, sort of. Human societies cannot exist in a complete legal vacuum without some sort of rules. The object here is to discover and delineate what rules there are. This paper mainly concerns bondholders but much of it also applies to banks and other creditors…

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