Venezuela as a Case Study in Limited (Sovereign) Liability

Abstract

Venezuela is in a severe economic crisis. An October 2016 debt swap bought some time for the beleaguered state-owned oil company Petroleos de Venezuela, S.A. (PDVSA), but there remains speculation about default by both PDVSA and the government. The fact that Venezuela’s economy is heavily dependent on oil exports has led some observers to assume that, in the wake of a default, creditors could easily seize assets associated with natural resource exploitation. In this article, we explore some of the legal considerations that would govern such litigation. Our primary claim is that matters are not so simple. Even ignoring issues associated with sovereign immunity and bankruptcy law, we emphasize the doctrine of separate corporate personhood (i.e., the fiction that corporations are independent legal persons responsible for their own, and only their own, debts). We do not purport to predict the outcome of any disputes that might arise in the wake of a default. Instead, we use Venezuela as a case study, identifying the many ways in which the doctrine of separate corporate personhood may affect the relative rights and bargaining power of a sovereign debtor and its creditors.