IPD AI Insights

Support Memorandum

06/09/2025
Open Letters

A debt crisis is endangering development around the world, increasing the risk of defaults in the coming years, especially in low and lower-middle income countries. When countries suffer debt crises, prolonged and insufficient debt restructurings delay economic recovery and stunt funding for priorities like healthcare, education, and mitigating impacts of the climate crisis. This dangerous situation calls for urgent attention to the inefficiencies in the sovereign debt restructuring landscape.

One such inefficiency, which has gained prominence since the 1990s, is the ability of so-called vulture funds to disrupt normal sovereign debt restructurings via pursuing litigation in the hopes of receiving preferential repayment vis-a-vis other creditors. This tactic has primarily been employed in New York and London courts as these jurisdictions account for the majority of sovereign bond governance. Efforts are underway in both jurisdictions to correct this.

Because New York State houses a large share of the international financial sector, over 50 percent of global sovereign bonds are issued under New York State law. Until 2004, New York law contained a stronger version of a provision, called champerty, which prevents the purchase of debt with the intent of suing the issuer. This served as a defense that countries could employ against vulture fund lawsuits. However, in 2004, the New York State legislature amended the champerty law, inserting a provision which removed debt purchases above $500,000 from the purview of the law. This revision followed lobbying on behalf of vulture funds and enabled their subsequent proliferation.