The future of involuntary sovereign debt restructurings: Mamatas and Others v Greece and the protection of holdings of sovereign debt instruments under the ECHR

Abstract

This article revisits Greece’s 2012 debt restructuring, focusing on the legal changes and litigation that arose in relation to it in order to shed light on what kind of restructuring we may see next, in both Greece and the larger euro area.

In particular, creditor protection under the European Convention of Human Rights (ECHR) in sovereign debt restructuring by a debtor state retroactively changing the debt instrument’s background law is discussed in light of Mamatas and Others v Greece. This case provides a legal starting point for considering ‘whether’ and ‘when’ it is acceptable under the ECHR to interfere with private property in involuntary debt restructuring enabled by amendments of the law of the debtor state.

The case also invites a more general discussion of the crisis resolution tools used in the Greek restructuring, which were the majority modification procedures, often referred to as collective action clauses (CACs) when found in debt instruments. This article argues that the implementation of CACs in sovereign bonds may decrease the need for involuntary crisis resolution measures.

An examination of the design and prevalence of CACs shows, however, that these contractual clauses have limitations and cannot guarantee successful restructurings in all situations. The article concludes that, if sovereign debt restructurings are to serve as a viable crisis resolution measure—even if only as a last resort—reform of the current legal framework is needed.