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Interrupting Sovereign Debt Payments to Enforce Judgments: Nuisance or Real Threat?

This article examines an increasingly prominent, yet underexplored, sovereign debt enforcement strategy: the use of judicial processes to interrupt payments to third-party creditors in order to satisfy sovereign debt judgments and arbitral awards. Rather than pursuing traditional execution against sovereign assets, judgment creditors have sought to restrain, attach, or otherwise disrupt payment flows associated with performing debt instruments, thereby increasing pressure on sovereigns to settle outstanding claims. On the one hand, payment disruption efforts frequently fail to survive on the merits due to immunity protections, ownership requirements, and contractual barriers that limit creditors’ ability to reach payment flows. On the other hand, even unsuccessful actions can generate significant leverage by creating uncertainty, threatening payment disruptions, and increasing the risk of default, rating downgrades, and reputational harm. The article reviews a series of such enforcement attempts under New York law, highlighting how turnover orders, restraining notices, injunctions, and related remedies have been deployed in practice. It concludes by evaluating legislative, contractual, and institutional reforms that could reduce systemic risks posed by payment-interruption tactics while preserving the enforceability of sovereign debt contracts.