This paper presents a new way to design a court-based sovereign debt restructuring mechanism (SDRM). While most proposals for such mechanisms aim to develop a multi-country or global mechanism to restructure sovereign commercial debts, this paper suggests that a single country could set up a sovereign bankruptcy court and invite debtors to use its legal system to gain the benefit of the mechanism.

Author Gregory D. Makoff argues that this single country approach substantially simplifies the set up and operation of the SDRM and lowers the opportunity for holdout investors to carry out disruptive litigation. The approach begins with an analysis of the incentives of debtors and creditors in order to identify a mix of features that could be included to attract both constituents. The proposal would be court-based and grant the judge the power to sanction debtors or creditors should they fail to cooperate in reaching a solution. One, perhaps unique, feature of this proposal is that payment standstills on affected debt would be structured to allow continued payment of interest from the debtor to creditors during the negotiation of terms, while principal payments would be deferred.

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CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.
  • CIGI Senior Fellow Gregory Makoff researches issues in international financial policy, including the management of sovereign debt crises. He is an expert in sovereign debt and an experienced debt capital markets professional.