Investors and Sovereign Debt Restructurings: The Protection of Financial Property before International Courts and Arbitrators

Since 2007, many investors have sought international protection against the effects of sovereign defaults, especially when States try to resolve financial distress through restructurings and, in particular, through compulsory or semi-compulsory restructurings.After the well-known Abaclat award, other arbitrators and international courts were asked to rule on haircuts and to establish if there were any international treaties that protect investors’ properties and prevent any interference in these properties without the agreement of all the bondholders involved.Even though many of the claims have been rejected, today investors have the right to sue States or other Supranational Institutions to demand protection of their financial properties. According to final rulings, on the one hand, the broad protection given to property rights, regulated by the general principles of law, includes also bonds issued by the States. On the other hand, the protection of private properties ends when it conflicts with some public interests.While the protection of sovereign bondholders is controversial under 1965 Washington Convention and many BITs, the CETA allows expressly bondholders to file claims before the CETA arbitral panel to be indemnified. The CETA text is substantial because, on the one hand, it confirms that sovereign bondholders can be protected by bilateral/multilateral investment treaties as well as, on the other hand, that this protection is not absolute, but should be subordinated to some circumstances. It is interesting to discuss the rationale of these circumstances and if that CETA provision is adequate to reach an equitable balance between private and public interests.In sum, the case law of the last ten years suggests that there is a trend to strengthen sovereign bondholders’ protection, if issuers default. But, considering that investors aren’t worthy of an absolute protection of their financial properties, the written rules should subordinate that protection to the fulfilment of several circumstances according to the general interest.