To formalize or not to formalize: creditor–debtor engagement in sovereign debt restructurings

Extract

...

1. Introduction

Creditor–debtor engagement in one form or another has been a feature of many sovereign debt restructurings. In some cases, debtor–creditor engagement has been formalized and took the specific form of creditor committees (CCs). Discussions in the UN Study Group on a report concerning debtor–creditor engagement, which forms the basis for this article, revealed widely differing views on the merits and demerits of CCs, and on the level of prescription and detail that is desirable from a policy perspective.

Creditor–debtor engagement can take four conceptual forms depending on whether there is an obligation on both creditors and debtors to engage and on whether the obligation or otherwise applies even before the need for a restructuring appears on the horizon. These four forms are: (i) the insertion ex ante of contractual clauses in bond documentation for CCs; (ii) ex ante best practices for formal CCs; (iii) ex ante best practices for engagement between creditors and debtors or (iv) ex post agreement between the debtor and creditor on creditor engagement or CCs.