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The Missing Element of a Single Limb Voting Procedure: Fair and Equitable Treatment Standard in Sovereign Debt Restructuring
Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring”. Among other things, the staff paper advocates in favor of a single Collective Action Clause (“CAC”) with a menu of voting procedures, including (1) a series-by-series voting procedure, (2) a two-limb aggregated voting procedure, and (3) a single-limb voting procedure with the possibility for “sub-aggregation”.
The single-limb voting procedure in option (3) will enable contract terms to be amended on the basis of a single vote across all affected instruments, thereby disallowing a creditor or a group of creditors to obtain a blocking position in a particular series. In the view of the author, the single-limb voting procedure resembles the cram-down procedure in the U.S. municipality bankruptcy law, with the exception of one missing element. Whereas the cram-down procedure contains a safeguard provision that ensures minimum protection for each impaired dissent creditor class through the prohibition of unfair discrimination and fair and equitable treatment principle, the single-limb voting procedure is silent about creditor protection in this context. In searching for a safeguard provision for the single-limb voting procedure, the author discovers the similarities between the safeguard provision for cram-down procedures and the fair and equitable treatment principle under investment treaties, and argues that investment arbitration could serve as an appropriate forum to develop a safeguard provision for the single-limb voting procedure.
The single-limb voting procedure in option (3) will enable contract terms to be amended on the basis of a single vote across all affected instruments, thereby disallowing a creditor or a group of creditors to obtain a blocking position in a particular series. In the view of the author, the single-limb voting procedure resembles the cram-down procedure in the U.S. municipality bankruptcy law, with the exception of one missing element. Whereas the cram-down procedure contains a safeguard provision that ensures minimum protection for each impaired dissent creditor class through the prohibition of unfair discrimination and fair and equitable treatment principle, the single-limb voting procedure is silent about creditor protection in this context. In searching for a safeguard provision for the single-limb voting procedure, the author discovers the similarities between the safeguard provision for cram-down procedures and the fair and equitable treatment principle under investment treaties, and argues that investment arbitration could serve as an appropriate forum to develop a safeguard provision for the single-limb voting procedure.