Study On The Legal Matters Of Sovereign State Insolvency

At first, the preface of this paper introduces the current status quo of sovereign debt restructuring.Since 1990s, greater integration of capital markets and the shift from syndicated bank loans to traded securities have had profound impact on the way that emerging market sovereigns get financial help. More and more sovereign states began to issue all kinds of bonds in a range of legal jurisdictions, by using a variety of different instruments, to a diverse and diffuse group of creditors. This change has brought about two kinds of consequences. On one side, this change is a positive development because it expands sources of sovereign financing and diversifies risk. But on the other side, the greater diversity of claims and interests has also made it more difficult to secure collective action from creditors when a sovereign's debt service obligations exceed its payments capacity. This has reinforced the tendency for debtors to delay restructuring until the last possible moment, increasing the likelihood that the process will be associated with substantial uncertainty and loss of asset values, It' s detrimental to the debtors and creditors alike. So, how to avoid and solve the sovereign debt crisis is very crucial.The author reviews the present method of sovereign debt restructuring and it' s defects as follows:At present, the main method is to introduces collective action clauses into debt contract to facilitate the realization of collective action , but it has not functioned well. For collective action clauses only apply to the creditors and debtors of the same issued bond but not to the creditors and debtors of different issued bonds. Moreover, they do not apply to bank debtand commerce debt too. Actually the kinds of debt instruments which havebeen issued by sovereigns are diversified, but collective action clauses only realized collective action on each debt instrument, so they are different by instrument and can't realize collective action on all debt instruments. When it suffers debt crisis, a country usually can't repay it's all debt other than one kind of debt. So even if all the debt instruments include collective action clauses, the creditors of different types also will face the problem of collective action.Considering there are quite a few shortcomings of the collective action clauses, the author thinks it is imperious to look for a valid new method to solve the sovereign debt crisis at the second part of the paper. Therefore, in this context International Monetary Fund puts forward "Sovereign Debt Restructuring Mechanism"(SDRM) which primary adopts the same way of domestic bankruptcy laws to deal with sovereign debt restructuring. As it disposes the problem of unsustainable sovereign debt, SDRM is very similar to domestic bankruptcy laws. Moreover, SDRM adopts lots of provisions of domestic bankruptcy laws, so the author named it the public international insolvency law(international insolvency law for short).Domestic bankruptcy laws which do well in solving the problem of bankruptcy and accumulate a nice bit of experience will play a important role of reference for dealing with the sovereign debt crisis. Consequently, the firth part of the paper studies several domestic bankruptcy laws which have some different characters at length. And the author points out that the essential factors which the international insolvency law should possess. At the end, the author further discusses the specific systems of the international insolvency law.