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Venezuela's Debt Crisis: Why Litigation Is More Advantageous than Arbitration for Bondholders

As more and more Venezuelan debt becomes past due, holders of the Republic’s $36 billion of sovereign bonds are faced with an interesting choice should they wish to exercise remedies. The traditional response of an aggrieved bondholder would be to obtain a judgment for missed payments (either before or after an acceleration of the bonds) under New York law and in the courts of New York or London as provided for in the applicable bond documentation. Despite the fact that Republic’s bond documentation includes several bondholder-friendly protections to facilitate obtaining a court judgment, some commentators have nonetheless proposed investment arbitration as a plausible and preferred alternative to New York or London court litigation for bondholders seeking to recover on their defaulted bonds. These commentators ground their recommendation on the perceived advantages an arbitral award subject to the ICSID Convention offers over a New York or English court judgment, believing that such an award would permit them to seek enforcement worldwide on an accelerated time frame. This ICSID approach obtains its inspiration from the Abaclat arbitration filed by tens of thousands of retail Argentine bondholders in which they established ICSID jurisdiction over claims for defaulted bonds and eventually received partial payment in settlement with Argentina last year.[…]