« Russia Files Lawsuit Against Ukraine | Main | And... That's A Wrap. (Maybe?) »

Pari Passu Endgames: Now With Even More Unequal Treatment!

posted by Mark Weidemaier

The ending of the pari passu saga was destined to be somewhat messy, if only because it would force the court to confront the fundamental illogic of the injunction. If we accept that each holder of bonds untendered in the 2005 and 2010 exchanges has a contractual right to equal treatment, then any settlement with less than 100% participation can be blocked by holdouts, who are, after all, denied equal treatment when settling bondholders get paid. And there are further wrinkles. For example, Argentina's current settlement proposal treats holdouts with injunctions differently from holdouts without injunctions, and this too is incompatible with equal treatment. (The equal treatment obligation stems from the underlying bond contract, not from the injunction...) Of course, nothing prevents bondholders from agreeing to accept unequal treatment. But a holder that rejects the settlement would have an additional reason to complain.

The court won't be able to avoid such questions. Here's a brief opposing Argentina's request to lift the injunction filed by a group of proposed intervenors--holders of English- and German-law bonds--who object to being treated differently on account of not (yet) having injunctions. At the moment, they simply want the court to keep the injunction in place. But the logic of the injunction is such that they should be entitled to block any payments to settling bondholders.

There will have to come a point when remaining holdouts are no longer entitled to block payments, and we are clearly nearing that point. Courts should not issue or maintain injunctions that do not serve the public interest. As more claimants settle, and remaining holdouts seem increasingly unreasonable, the public interest may point towards lifting the injunction. But it will be interesting to see how the court justifies this decision. And it will be more than a little ironic if the court lifts the injunction to facilitate a settlement that itself violates the promise of equal treatment.

Comments

The comments to this entry are closed.

Regulars

Occasionals

Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Categories

Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

OTHER STUFF

Powered by TypePad