Good Faith in Sovereign Debt Restructuring: Mapping a Shift from Enforcement to Voluntary Compliance

Abstract

Our examination of changes in the period leading up to the Argentine debt exchange and after, reveals that with Collective Action Clauses (CACs), the sovereign debt market is increasingly reliant on good faith as a standard of fair dealing to ensure fair and orderly debt restructurings in the future. Unlike the entrenched, enforceable, doctrinal good faith in domestic jurisdictions such as the U.S., the norm relied on in the sovereign debt market is a contextual open norm similar to the notion of Treu und Glauben, section 242 BGB of the German civil code. It is not a legal rule with specific requirements that need to be fulfilled. This paper reveals that reliance on a contextual, open norm is evidence of a shift in the framework that regulates sovereign debt restructurings: a shift from enforcement to voluntary compliance. Further, we argue that in the absence of a multilateral, regulatory, framework that embeds good faith as a specific standard of fair dealing, this reliance will exacerbate not solve the problem of sovereign debt restructurings.