Good faith in a sovereign debt restructuring sequential game

This study explores a legal and economic understanding of breach of good faith. First, it starts with a review of bona fide within the sovereign debt restructuring literature. Then, the study moves into a recent and emblematic case where a breach of good faith was invoked by minority creditors. This case illustrates controversial legal techniques that may be used for enforcing a bond restructuring which in turn rises arguments related to breach of good faith compliance. Next, the research constructs a sequential game for setting the limits of good faith in sovereign debt workouts. The concepts of subgame perfect Nash equilibrium and Pareto optimal are examined in two scenarios: an unsu­pervised debt restructuring process, and a supervised restructuring process. After this, the article studies how good faith compliance is connected to the subgame perfect Nash equilibrium and Pareto optimality. Finally, the last part briefly discusses how the legal and economic approach to a breach of good faith could be implemented in legal practice.