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Holdout creditors who refused to take part in Argentina's two debt restructurings have won a major victory in the New York courts by relying on a pari passu clause, overturning the conventional wisdom as to the meaning of this clause. The courts decided that the clause meant that Argentina could not pay those creditors who participated in the restructurings without at the same time paying those who did not.

The decision has caused uproar in the sovereign debt restructuring arena, but whether the success means that the holdouts will recover anything depends upon the next phase of the litigation and, in particular, the remedies that the courts grant. Whether the judgment has wider implications on sovereigns' ability to restructure their debts also turns on the next stage of the litigation, but the severe aggravation that holdout creditors can cause will have focused sovereigns' attention on the benefits of collective action clauses with aggregation.

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