Why There Is a Case for a Sovereign Insolvency Procedure: Economic and Social Aspects of Domestic Insolvency Regulation in Context with Over-Indebted Nations

Abstract

We all read in newspaper nowadays about high debt burdens of sovereign nations and the threat of default. Yet, is it really possible that countries go insolvent? And if so, what happens then? The answer for the last question cannot be given easily, but is important for the goal of this paper, namely to expound that there is a lack of an international insolvency framework for sovereign nations. This is underlined by a theoretical analysis as to why the well recognised economic and social reasons for domestic insolvency provisions are also suitable for sovereign insolvency, even though there are some limitations for the adaption; an insolvency forum for countries cannot provide the same protection for creditors as in a domestic insolvency regime. However, this does not undermine the need for a sovereign insolvency regime, but shows that the drafters of such a regime must take into consideration the particular power of sovereign nations in regards to prevention of abuse.