Vulture Fund Legislation
Preprint version of Astrid Iversen, ‘Vulture Fund Legislation’, Banking & Financial Services Policy Report, Wolters Kluwer, Vol. 38, Number 5, March 2019
12 Pages Posted: 20 Sep 2019
Date Written: September 19, 2019
There are no legally binding bankruptcy mechanisms for sovereign states under international or domestic law. If a sovereign debtor experiences payment difficulties or defaults on its payment obligations, it must seek to negotiate a voluntary restructuring agreement with its creditors. This voluntary approach to debt restructuring has allowed for the development of a business model: investors can purchase distressed debt on the secondary market, often at a steep discount, with the intent of suing or threatening to sue, in order to recover the full amount. Investment funds that specialise in such strategies are sometimes called ‘distressed debt funds’ or ‘vulture funds’; the latter term clearly signals an ethical condemnation of the funds’ business practices, which involve freeriding on debt relief (and sometimes development aid) given to countries in debt crisis and on co-creditors’ losses. The article analyses national legislation enacted to discourage disruptive disruptive litigation initiated by vulture funds and examines whether it is likely that such legislation will be enacted on a European Union level.
Keywords: sovereign debt, sovereign debt restructuring, vulture fund, vulture fund legislation, sovereign immunity
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