Part II frames the inquiry: Does the celebrated dispute over the meaning of the pari passu clause provide evidence that the current means of revising black holes impose large and uncompensated social costs?
The pari passu saga that we describe below illustrates the substantial social costs caused by aberrant interpretations of contractual black holes.
To understand why an examination of the history of the pari passu clause offers a valuable natural experiment, one needs to return to litigation that occurred in 2000 involving NML's predecessor, Elliott Associates, another hedge fund run by Mr.
50) But notwithstanding the dismay expressed in dozens of academic and policy articles, (51) and even after a proposal for a new international bankruptcy court for sovereign debtors led by the International Monetary Fund (IMF), (52) for over a decade virtually no pari passu provisions in sovereign debt contracts were modified to clarify this understanding.
NML requested an injunction from a federal judge in New York based on a claimed violation of essentially that same version of the pari passu clause.
The financial community again expressed profound dismay at the court's interpretation of the pari passu boilerplate language.
Yet, in October of 2012, the Second Circuit's three-judge panel unanimously affirmed the trial judge's interpretation of Argentina's pari passu clause.
There is no basis on which the Greenbergs can claim to be treated more favourably than they would be treated if either (I) their debt is paid pari passu with the claims of the CVA creditors or (ii) the administration order were now discharged and the company were wound up.
The question, therefore, is whether, if the administration continues and the Greenbergs' debt is paid pari passu with the claims of the CVA creditors under the voluntary arrangement, the Greenbergs will be treated less favourably than they would have been if the administration order were now discharged and the company were wound up.
As an algebraic analysis shows] the dividend that will be received by the Greenbergs if they are treated pari passu with the CVA creditors will always be greater than the dividend which they would receive in a liquidation.
