University of Miami Business Law Review


David Newfield

Document Type



The pari passu clause is found in nearly every sovereign debt contract issued throughout the globe. In the private context, this clause is well understood to ensure fair distributions to all creditors in the event of bankruptcy and liquidation. As insolvency distributions are not an option when dealing with distressed sovereign debt, the rights and duties associated with this clause have been subject to extensive litigation for over 20 years.

Starting from the case of Elliot v. Peru, in the early 1990s, and more recently in Argentina v. NML, courts have interpreting these bonds, governed subject to New York law, in favor of holdout creditors. By means of a novel interpretation of the clause, vulture funds have gained a legal “weapon” with which they can force a sovereign nation into default if they are not paid in full. As a result, sovereign debtors have rapidly begun to adapt the pari passu clause in their new debt contracts to negate the adverse position of the courts. This leads to the questions of why these contracts have been so slow to adapt and what catalyst has been the impetus of change in recent years.