THE EVOLUTION OF MODERN SOVEREIGN DEBT LITIGATION: VULTURES, ALTER EGOS, AND OTHER LEGAL FAUNA

THE EVOLUTION OF MODERN 
SOVEREIGN DEBT LITIGATION: 
VULTURES, ALTER EGOS, AND OTHER 
LEGAL FAUNA 

JONATHAN I. BLACKMAN*
RAHUL MUKHI**
I
INTRODUCTION: THE LACK OF BANKRUPTCY PROTECTIONS FOR SOVEREIGNS
The recent global financial crisis vividly displayed the legal protections
available in nonsovereign insolvencies. To use a prominent example in the
United States, the massive Chrysler Corporation—whose $49 billion in revenue
in 2007 was greater than the GDP of more than half the world’s nations1
—was
able to leverage the threat of declaring bankruptcy to extract economic
concessions from its commercial lenders, bondholders, employees, and other
creditors (with significant financial and political support from the U.S.
Administration).2
 Once Chrysler negotiated the terms of a sale with the
majority of its creditors, it entered bankruptcy with a prepackaged petition,
and, shortly thereafter, a new Chrysler entity emerged from the process as a
going concern, no longer burdened by billions of dollars of debt.3
 Although a
minority of creditors challenged the Chrysler sale as a draconian invalidation of
their contract rights, those efforts failed under the debtor-friendly rules of
Chapter 11.4


Copyright © 2010 by Jonathan I. Blackman & Rahul Mukhi.
 This article is also available at http://www.law.duke.edu/journals/lcp.
* Partner, Cleary Gottlieb Steen & Hamilton, LLP (London). The firm has represented
numerous states in debt restructuring and litigation, including many of the sovereign defendants in the
cases discussed here. Cleary Gottlieb also represented the United Auto Workers in Indiana State
Police Pension Trust v. Chrysler, LLC (In re Chrysler, LLC), 576 F.3d 108 (2d Cir. 2009).
** Former Associate, Cleary Gottlieb Steen & Hamilton, LLP (New York).
 1. The 35 Largest U.S. Private Companies, http://money.cnn.com/galleries/2008/fortune/0805/
gallery.private_companies.fortune/4.html (last visited Nov. 24, 2009); WORLD BANK, World
Development Indicators database, Gross domestic product 2007 (revised Sept. 10, 2008).
 2. See Bill Vlasic & David E. Sanger, Debtholders v. U.S. Over Chrysler Deal, N.Y. TIMES, Apr.
22, 2009, at B1; Bill Vlasic, Holdouts Jeopardize Plan for Chrysler, N.Y. TIMES, Apr. 28, 2009, at B1.
 3. Michael J. de la Merced & Micheline Maynard, Fiat Deal with Chrysler Seals Swift 42-Day
Overhaul, N.Y. TIMES, June 10, 2009, at B4.
 4. See In re Chrysler, LLC, 576 F.3d at 108.

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