European Insolvency Claims Trading: Is Iceland the Paradigm?

David Karp, Co-Head of Special Situations & Alternative Investments, and his co-authors examine the development of the European insolvency claims trading market, highlighting how high-profile cases such as Lehman Brothers and the Icelandic bank failures have driven growth and shaped market practices. They explain that while claims trading offers investors opportunities to monetize distressed positions, it also introduces key risks—including recovery uncertainty, notional amount disputes and counterparty credit exposure—that require careful diligence and structuring. The article emphasizes that evolving documentation standards and legal frameworks will play a critical role in the continued expansion and sophistication of the European secondary claims market.