Search engine for discovering works of Art, research articles, and books related to Art and Culture
ShareThis
Javascript must be enabled to continue!

Pari Passu Lost and Found: The Origins of Sovereign Bankruptcy 1798-1873

View through CrossRef
Verdicts returned by modern courts of justice in the context of sovereign debt lawsuits have upheld a ratable (proportional) interpretation of so-called “pari passu” clauses in debt contracts which, literally, promise creditors they will be dealt with equitably. Such verdicts have given individual creditors the right to interfere with payments to others, in situation where the sovereign had failed to make proportional payments. Contract originalists argue that this interpretation of pari passu clauses has no historical foundation. Historically, they claim, pari passu clauses never granted individual creditors a unilateral right to block payments to other bondholders assenting to a government debt restructuring proposal. This article shows this claim is incorrect. Drawing on novel archival research, it argues that pari passu clauses find one potent historical origin in the operation of a now forgotten sovereign bankruptcy tribunal, the London stock exchange. Under the law of the stock exchange, departure from ratable payments did create a unilateral right for individual creditors to interfere with sovereign debt discharges. In fact, ratable distributions provided the touchstone for the stock exchange sanctioned sovereign debt discharge system. What is more, sophisticated contract drafters availed themselves of the logic. The result was a weaponization of pari passu clauses, and their inscription into sovereign debt covenants in the 19th century. The article concludes that the modern debate on the role of clauses in sovereign debt contracts cannot be held without thorough reconsideration of the history of sovereign bankruptcy.
Institute for New Economic Thinking Working Paper Series
Title: Pari Passu Lost and Found: The Origins of Sovereign Bankruptcy 1798-1873
Description:
Verdicts returned by modern courts of justice in the context of sovereign debt lawsuits have upheld a ratable (proportional) interpretation of so-called “pari passu” clauses in debt contracts which, literally, promise creditors they will be dealt with equitably.
Such verdicts have given individual creditors the right to interfere with payments to others, in situation where the sovereign had failed to make proportional payments.
Contract originalists argue that this interpretation of pari passu clauses has no historical foundation.
Historically, they claim, pari passu clauses never granted individual creditors a unilateral right to block payments to other bondholders assenting to a government debt restructuring proposal.
This article shows this claim is incorrect.
Drawing on novel archival research, it argues that pari passu clauses find one potent historical origin in the operation of a now forgotten sovereign bankruptcy tribunal, the London stock exchange.
Under the law of the stock exchange, departure from ratable payments did create a unilateral right for individual creditors to interfere with sovereign debt discharges.
In fact, ratable distributions provided the touchstone for the stock exchange sanctioned sovereign debt discharge system.
What is more, sophisticated contract drafters availed themselves of the logic.
The result was a weaponization of pari passu clauses, and their inscription into sovereign debt covenants in the 19th century.
The article concludes that the modern debate on the role of clauses in sovereign debt contracts cannot be held without thorough reconsideration of the history of sovereign bankruptcy.

Related Results

Bankruptcy Abstention
Bankruptcy Abstention
<p>Courts have been finding ways to avoid hearing bankruptcy cases for a long time.&nbsp; This practice distinguishes bankruptcy from other types of federal cases.&nb...
Iniquus Passu?
Iniquus Passu?
Is the pari passu clause found in sovereign debt contracts really about "pari passu"? Is the clause really a guardian of creditor equality? Should it be? Perhaps debtors and (non p...
Institutions, Incentives, and Consumer Bankruptcy Reform
Institutions, Incentives, and Consumer Bankruptcy Reform
Consumer bankruptcy filing rates have soared during the past 25 years. From 225,000 filings in 1979, consumer bankruptcies topped 1.5 million during 2004. This relentless upward tr...
The Pari Passu Fallacy -- Requiescat in Pace (La Falacia pari-passu -- Descanse en paz)
The Pari Passu Fallacy -- Requiescat in Pace (La Falacia pari-passu -- Descanse en paz)
<b>English Abstract:</b> The pari passu fallacy, first uncloaked in 2000, holds that when a sovereign borrower promises to maintain the equal ranking of a debt with th...
‘A Hollywood Blockbuster’, or the Problems of Liability in Ukrainian Bankruptcy Proceedings
‘A Hollywood Blockbuster’, or the Problems of Liability in Ukrainian Bankruptcy Proceedings
Among the legal mechanisms directly involved in resolving the issue of debtors’ insolvency and the settlement of creditors’ monetary claims are the institutions of joint and severa...
Pari Passu Distribution and Post-Petition Disposition: A Rationalisation of Re Tain Construction
Pari Passu Distribution and Post-Petition Disposition: A Rationalisation of Re Tain Construction
The UK Insolvency Act 1986, s 127 provides that in a winding up by the court any disposition of the company's property made after the commencement of the winding up is void unless ...
Bank Bankruptcy Lawsuit Procedures for Branches of Foreign Banks in Iraq
Bank Bankruptcy Lawsuit Procedures for Branches of Foreign Banks in Iraq
The cessation of the merchant from paying his commercial debts entails entering into financial hardship that leads to the possibility of declaring bankruptcy, and ruling in the cas...

Back to Top