Chinese Infrastructure Investors Can Effectively Challenge Sovereign Debtors

Chinese investors have become increasingly prominent in sovereign-related investments, particularly through acquisitions, joint ventures, and critical infrastructure projects in Europe, Africa, and Latin America. Recent reporting on Chinese involvement in strategic ports across Latin America highlights how these investments can blur the lines between commercial interests and sovereign influence. This exposure increases the likelihood of investors facing enforcement challenges abroad, implicating a sovereign’s unique powers and immunities.

Investors and other claimants should not be afraid to stand up to sovereign debtors with aggressive non-traditional strategies. Litigation is but one element of an effective strategy:

1. Focus on Outcomes, Not Assets. Given the protection of sovereign immunity, creditors cannot always rely on conventional asset recovery solutions. Award holders should focus their resources on strategies most likely to cause the sovereign debtor to agree to (and follow through on) a resolution. They can also consider going beyond assets, such as striking alliances with other government and quasi-government bodies, like the World Bank.
2. Preserve Assets with Interim Applications. Where available, discovery, charging orders, third-party debt orders, or the appointment of a post-judgment receivers in key jurisdictions can be crucial in preserving the value of assets that have not yet matured or that require management by a third party. Appointment of a receiver can cause cross-defaults on other debt and impact future capital raising.
3. Remember: A Settlement is Not the Finish Line. A sovereign that incurred a large bond, loan, judgment, or award liability may be just as willing to renege on a settlement agreement. Crafting a settlement agreement that protects against these risks is key to securing a substantial return.  When the sovereign insists on deferring payments over time, creditors should consider security, consent judgments, choice of law, as well as the deployment of contractual receivers to take control of assets if the settlement agreement is breached. Thinking ahead to the subsequent default will help protect a hard-won victory.

An unconventional cross-border enforcement strategy may increase private Chinese investors' chances of achieving an acceptable settlement and significant return.