Template:Failure to pay procedure: Difference between revisions

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So, you will need:
So, you will need:
*'''A failure''': A {{{{{1}}}|Failure to Pay or Deliver}}, on day '''T'''. This is an {{{{{1}}}|Event of Default}} under Section {{{{{1}}}|5(a)(i)}}. You must have:
====A failure====
::(i) a Failure by the {{{{{1}}}|Defaulting Party}} to make a payment or delivery when due;
A {{{{{1}}}|Failure to Pay or Deliver}}, by the {{{{{1}}}|Defaulting Party}} to make a payment or delivery when dueon day '''T'''. This is an {{{{{1}}}|Event of Default}} under Section {{{{{1}}}|5(a)(i)}}.  
::(ii) a notice by the {{{{{1}}}|Non-Defaulting Party}} under Section {{{{{1}}}|6(a)}} to the {{{{{1}}}|Defaulting Party}} that the failure ''has happened'' and designating an {{isdaprov|Early Termination Date}}, no more than twenty days in the future.
 
*'''Notice of failure''': The {{{{{1}}}|Non-defaulting Party}} must give notice of the {{{{{1}}}|Failure to Pay or Deliver}} (which since it is not due until the close of business on a given day, [[Q.E.D.]], can be validly given ''only after'' [[close of business]] on the due date for payment or delivery) and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), will only be deemed effective on the following {{{{{1}}}|Local Business Day}}: ie '''T+1'''. <ref>'''Spod’s note''': This notice requirement is key from a cross default perspective (if you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is): if you don’t have it, ''any'' failure to pay under your {{isdama}}, however innocuous — even an operational oversight — automatically counts as an Event of Default, and gives a different person to the right to close ''their'' {{isdama}} with your Defaulting Party because of it defaulted to ''you'', even though (a) the Defaulting Party ''hasn’t'' defaulted to ''them'', and (b) you have decided not to take any action against the Defaulting Party yourself.</ref> Note also: you cannot send a close-out notice by [[email]], [[electronic messaging system]], or (if you have a {{1992ma}}, at any rate), by [[fax]]. The proper form is to have it hand-delivered by someone prepared to swear an affidavit as to when and where they delivered it to the {{isdaprov|Defaulting Party}}.
====Notice of failure====
*'''[[Grace Period]]''': Once the notice is effective, the {{{{{1}}}|Defaulting Party}} has a window (the [[grace period]]) in which it can remedy the failure to pay or deliver.  
The {{{{{1}}}|Non-defaulting Party}} must give the {{{{{1}}}|Defaulting Party}} notice under Section {{{{{1}}}|6(a)}} of the {{{{{1}}}|Failure to Pay or Deliver}} no more than twenty days in the future. The [[twenty Business Days]] restriction is a fun one that no-one has been able satisfactorily to explain to me.
 
Since payments and deliveries are generally due at [[close of business]] on a given day, [[Q.E.D.]], a Section {{{{{1}}}|6(a)}} notice of Failure to Pay or Deliver can usually only be given ''after'' [[close of business]] on the due date.
 
Thanks to Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the Section {{{{{1}}}|6(a)}} notice will only be effective on the following {{{{{1}}}|Local Business Day}}: i.e., '''T+1'''. <ref>'''Spod’s note''': This notice requirement is key from a [[cross default]] perspective (if you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is): if you don’t have it, ''any'' failure to pay under your {{isdama}}, however innocuous — even an operational oversight — automatically counts as an Event of Default, and gives a different person to the right to close ''their'' {{isdama}} with your Defaulting Party because of it defaulted to ''you'', even though (a) the Defaulting Party ''hasn’t'' defaulted to ''them'', and (b) you have decided not to take any action against the Defaulting Party yourself.</ref> Note also: you cannot send a close-out notice by [[email]], [[electronic messaging system]], or (if you have a {{1992ma}}, at any rate), by [[fax]]. The proper form is to have it hand-delivered by someone prepared to swear an affidavit as to when and where they delivered it to the {{isdaprov|Defaulting Party}}.
 
====[[Grace period]]====
Once your Section {{{{{1}}}|6(a)}} notice is effective, the {{{{{1}}}|Defaulting Party}} has a window (the “[[grace period]]”) in which it can remedy the failure to pay or deliver.  
:(i) The standard [[grace period]]s are set out in Section {{{{{1}}}|5(a)(i)}}. Be careful here: under a {{2002ma}} the standard is '''''one''''' {{isdaprov|Local Business Day}}. Under the {{1992ma}} the standard is '''''three''''' {{isda92prov|Local Business Day}}s. ''But check the {{{{{1}}}|Schedule}}'' because in either case this is the sort of thing that counterparties adjust: {{2002ma}}s are often adjusted to conform to the {{1992ma}} standard of three {{{{{1}}}|LBD}}s, for example.  
:(i) The standard [[grace period]]s are set out in Section {{{{{1}}}|5(a)(i)}}. Be careful here: under a {{2002ma}} the standard is '''''one''''' {{isdaprov|Local Business Day}}. Under the {{1992ma}} the standard is '''''three''''' {{isda92prov|Local Business Day}}s. ''But check the {{{{{1}}}|Schedule}}'' because in either case this is the sort of thing that counterparties adjust: {{2002ma}}s are often adjusted to conform to the {{1992ma}} standard of three {{{{{1}}}|LBD}}s, for example.  
:(ii) So: once you have a clear, notified {{{{{1}}}|Failure to Pay or Deliver}}, you have to wait ''at least'' one and possibly three or more {{{{{1}}}|Local Business Day}}s before doing anything about it. Therefore you are on tenterhooks until the [[close of business]] '''T+2''' {{{{{1}}}|LBD}}s (standard {{2002ma}}), or '''T+4''' {{isda92prov|LBD}}s (standard {{1992ma}}).  
:(ii) So: once you have a clear, notified {{{{{1}}}|Failure to Pay or Deliver}}, you have to wait ''at least'' one and possibly three or more {{{{{1}}}|Local Business Day}}s before doing anything about it. Therefore you are on tenterhooks until the [[close of business]] '''T+2''' {{{{{1}}}|LBD}}s (standard {{2002ma}}), or '''T+4''' {{isda92prov|LBD}}s (standard {{1992ma}}).  
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