Client Alerts

Restructuring, COVID-19 and Investor-State Arbitrations:  Often Overlooked Issues

Volterra Fietta Client Alert
29 April 2020

The recession caused by the COVID-19 pandemic has had global effects, affecting foreign operations and divisions around the world.  Numerous companies are seeking to acquire additional debt based on foreign assets.  Companies are also looking to sell assets in order to bolster cash reserves.

Before a multinational company restructures, takes on debt based on foreign assets or sells foreign assets, it should carefully consider how those acts may affect investment protection claims it might have against host States under international law.  This article provides a list of key issues for such companies.


Companies with foreign assets, and their subsidiaries in the chain of ownership of a foreign asset, may be protected by a series of over 3,000 investment protection treaties.  These treaties provide specific guarantees that foreign investments in a signatory State will be protected by international law, including often a guarantee of market value compensation in the event of an expropriation.  These treaties also provide companies with a means of resolving their claims against host States for breaches of the treaty through a neutral international forum – called investor-State arbitration.  Investor‑State arbitration is an important and vital protection for all manner of foreign investments.  A recent VF client alert discusses the matter in more detail.

Any multinational company that is undergoing a restructuring, incurring new debt or selling foreign assets, should carefully consider how those actions might affect its potential investor-State arbitration claims.  This is especially true of companies that might have disputes with foreign authorities (whether local, regional or national) where its assets are located.  Below are some of the considerations for companies undertaking those acts.

Preserving investor-State arbitration rights

A company undergoing a restructuring may inadvertently lose or diminish its rights under investment protection treaties or its access to investor-State arbitration.  Generally speaking, any entity in the corporate chain of ownership might be protected by an investment protection treaty.  The limitations that apply to derivative claims under domestic law rarely, if ever, apply to investor‑State arbitration claims.  Even indirect interests are often protected by international law.  However, only entities of a specific nationality can gain access to a particular treaty’s protection.

It follows that changes in the nationality of entities in the corporate structure (such as for tax reasons or through an attempt to shift the centre of main interests to a more favourable insolvency regime) can inadvertently lead to the lack of access to an investment protection treaty.  Any change in nationality – or removal of an entity from the corporate structure – must be evaluated in light of this potential loss.

Preserving the value of investor-State arbitration claims

Companies must also consider whether the partial sale of interests in their foreign assets, or incurring debt on foreign assets, may inadvertently diminish the value of investor-State arbitration claims.  A company’s recovery in an investor-State arbitration is usually limited to its pro rata economic interest in a foreign investment.  Changing that economic interest will change the potential recovery.  One way to mitigate this risk is to carve out either the foreign investment or its claims from any sale or security package, thereby preserving the value of the claims.

Furthermore, the value of a foreign investment – and thus potentially of investor-State arbitration claims – will usually diminish if either:  (i) the company causes its foreign subsidiary holding the investment (or indirectly holding the investment) to incur debt on its balance sheets, including by intercompany loans; or (ii) the company secures its debt through the foreign investment’s assets and revenue streams.  Companies should be cognisant of this risk in order to make fully informed decisions.

Investor-State arbitration claims as a lever in negotiations or as a saleable asset

Companies should be aware of the potential value of their investor-State arbitration claims whenever they are negotiating with States or State entities.  Investor-State arbitration claims (or the threat thereof) can be a useful lever in such negotiations.  This is especially true if negotiations concern the re-negotiation of tariff rates or other economic aspects of a contract with a State entity.

Furthermore, companies should be aware that investor-State arbitration claims are potentially saleable assets, although often at steep discounts as compared to potential recovery.  Insolvency officeholders appointed to companies in liquidation or as part of a restructuring plan should also be aware of the potential value of investor-State arbitration claims.

Shareholder rights

The directors of companies should also inform their shareholders that the shareholders might have investor-State arbitration claims in their own right, separate from the company.  As noted above, any entity in the corporate chain of ownership might have rights to investor-State arbitration claims.

In conclusion, as companies address the economic and business ramifications of COVID-19, they should also consider their potential access to investor-State arbitration and the protections of international law.  A sophisticated understanding of an investor’s protections under a BIT can be an essential part of any restructuring process, including for the reasons described above.

For further information, please contact Robert G. Volterra ( or Gunjan Sharma (