Lenders are perfectly free to decide for themselves whether, when, how, to whom and on what terms they will extend credit to a sovereign borrower. But all such loans will involve risks and those risks occasionally materialize. When they do, is a creditor obliged to cooperate with its fellow lenders in the sovereign debt workout process? We don’t ask this question in the context of lending to corporate or individual debtors for the simple reason that insolvency statutes mandate such cooperation. Every lender to a corporate borrower knowingly extends credit in the shadow of a bankruptcy code that will, in the event of the borrower’s financial distress, subject the loan to a workout process in which the collective decisions of a supermajority of lenders will control. Not so for loans to sovereign borrowers. Sovereigns are not subject to bankruptcy codes, not their own, not anyone else’s. In the absence of a statutory compulsion through a bankruptcy code, are lenders to sovereign debtors obliged to cooperate with each other in a debt workout process? Or are they altogether free, morally and legally, to disregard the wishes of their colleagues and, at their pleasure, use the judicial process to free ride on the debt relief being provided to the sovereign by those other creditors?

Lee C. Buchheit & G. Mitu Gulati, The Duty of Creditors to Cooperate in Sovereign Debt Workouts, in Festschrift in Honor of Christoph Paulus (2024).