Chapter 1 places the topic of intercreditor equity in the broader debate on sovereign debt restructuring. In a situation where there is no general insolvency framework, which is the case for sovereign debtors, disparate rules govern the restructuring process. Since this process is only binding for the creditors who voluntarily accept it, there are no clear answers as to what role equal and preferred treatment play in the restructuring. The effect of these rules can vary depending on the specific facts of a case, such as the type of creditors involved and the underlying factors of the economic crisis of the sovereign debtor. The chapter discusses the key roles that equal and differential treatment of creditors may have in sovereign debt restructuring, including how it affects the likelihood of reaching a sustainable debt burden.

Chapter 4 examines intercreditor equity rules in domestic law. It also discusses which sovereign debt instruments are governed by domestic laws and the types of creditors that can hold such debt instruments. Section 4.2 examines the content and effects of the so-called pari passu clause. Section 4.3 discusses collective action clauses and exit consent. It also touches on potential minimum protection of minority creditors in debt restructurings implemented by majority voting procedures. Section 4.4 analyses special national legislation in Belgium, the United Kingdom, France, and in the Euro area, with the common aim of curbing certain rights of creditors who allegedly seek to free-ride on their co-creditors and thereby constitute an obstacle to debt crisis resolution (vulture fund legislation).

Chapter 7 discusses intercreditor equity and systemic challenges. More specifically, it discusses whether intercreditor equity rules and the surrounding legal framework of sovereign debt restructuring are compatible with public policy considerations, defined as a debtor state’s need to reach a sustainable debt burden and ensure monetary and financial stability. Only a couple of the rules would be considered as problematic in this regard. The number of different and uncoordinated intercreditor equity rules that a sovereign debtor state is typically bound by, combined with the scope of the rules, may restrict the debtor state’s room for manoeuvre to such an extent that it becomes difficult to implement a sustainable debt restructuring. Sufficient room for manoeuvre for debtor states to provide preferential treatment to certain creditors may allow for targeted measures that help the crisis-struck economy to recover faster. The described risk—that the parties involved in a debt restructuring are not able to reach a sustainable debt restructuring due to a narrowed policy space—is exacerbated under the current ad hoc system for debt crisis resolution. This system is heavily dependent on voluntary participation from creditors and contractual restructuring tools, and the state has limited freedom to use its sovereign powers to solve a debt crisis. Last, the chapter discusses good faith as a general principle of international law and whether it has a role to play as a cohesion tool reducing the fragmentation of intercreditor equity rules.

Chapter 8 discusses the outlook for broader systemic reform and concludes the book. The chapter argues that by clarifying the content and scope of core intercreditor equity rights and obligations applicable in the context of sovereign debt restructuring, the book may contribute to easing the level of conflict in future sovereign debt restructuring and improving the chances of achieving sustainable debt restructuring. It also suggests that the book should be read as cautioning against the shortcomings of the ad hoc contract-based regulatory framework governing sovereign debt and a call for reform. The increase of unsustainable debt burdens across many jurisdictions in the wake of the COVID-19 pandemic and the lack of effective debt crisis resolution measures is one example of how the current regulatory framework is flawed. Although there is a growing consensus that the current system of sovereign debt restructurings has several flaws, there is no corresponding agreement on how it should be improved. Resistance to reform of the legal framework governing sovereign debt is particularly strong with respect to initiatives that go beyond a voluntary contractual approach, especially in jurisdictions of economic importance. This resistance lacks justification. Important progress on the regulatory framework governing sovereign borrowing and lending has already been made by institutions such as the IMF, the United Nations Conference on Trade and Development, the United Nations Department of Economic and Social Affairs, and the UN General Assembly. Future reform should build on and learn from these processes.

Loan agreements between states, as well as those between a state and an international finance institution that is a subject under international law, can be entered into by the parties in their capacity as subjects of public international law. Such loan agreements can therefore be governed by international law. Chapter 3 discusses intercreditor equity rules in international law that are applicable to creditors who are subjects of international law and who hold debt instruments governed by international law. In particular, it discusses the so-called equality rule, secured creditors, and whether there are any customary rules in international law providing certain creditors, such as the International Monetary Fund, with a preferred status. The chapter concludes that there is no rule in customary international law providing particular creditors or particular classes of creditors with preferred status and hence no basis to support a priority claim based on custom. It does, however, show that several international finance institutions often are treated as de facto preferred creditors. Preferential treatment of creditors is also sought through voluntary agreements.