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Abstract

In the sovereign debt market, the typical remedies to resolve sovereign default are either the negotiation route or a unilateral exchange offer. However, as a result of increasing insecurity in the sovereign debt market due to rogue sovereign debtors who take advantage of their immunity to opportunistically default and create unfavorable restructuring deals, creditors began resorting to a previously limited remedy: litigation. Although litigation to resolve sovereign default was not a new concept in the sovereign debt market, it was ineffective due to the creditor’s inability to actually recover the money judgment from the sovereign debtor. In NML Capital v. Argentina, the Second Circuit determined that the injunctive remedy was necessary to motivate sovereign debtors to meet the obligations to their creditors and to reduce the nonpayment risk in the sovereign debt market. By establishing an enforcement mechanism for a creditor against a sovereign debtor, the Second Circuit increased certainty for investors by ensuring collectability and providing an incentive to invest in sovereign debt markets.

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