Template:Failure to pay procedure

{{{{{1}}}|Failure to pay}} procedure

Terminating the ISDA Master Agreement on this ground requires:

• 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 by the Defaulting Party to make a payment or delivery when due

- That the Defaulting Party has not remedied that failure within the applicable grace period. Under a 2002 ISDA the default is one Local Business Day. Under the 1992 ISDA the default is three Local Business Days. But check the {{{{{1}}}|Schedule}}: This is the sort of thing that counterparties adjust: 2002 ISDA are often adjusted to conform to the 1992 ISDA standard of three {{{{{1}}}|LBD}}s, for example.

• Notice of failure: The innocent party to give notice of the failure (which, Q.E.D., can be validly given only after close of business on the due date for payment or delivery (until then, the guilty party isn't technically “guilty”) and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the notice will only be deemed effective on the following business day, T+1.

• Spod’s note: This notice requirement is key from a {{{{{1}}}|Cross Default}} perspective: if you don’t have it, any failure to pay under your ISDA Master Agreement, however innocuous — even an operational oversight — automatically counts as an {{{{{1}}}|Event of Default}}, and gives a different person to the right to close their ISDA Master Agreement with your {{{{{1}}}|Defaulting Party}} because of it defaulted to you, even though (a) the {{{{{1}}}|Defaulting Party}}hasn’t defaulted to them, and (b) you have decided not to take any action against the {{{{{1}}}|Defaulting Party}} yourself.

• Grace Period: After the notice of failure is delivered, the grace period must have expired (this depends on the ISDA edition you’re using: one under the 2002 ISDA; and three under the 1992 ISDA, and check also Part 5 of the ISDA {{{{{1}}}|Schedule}} to see if it has been amended specifically for the counterparty.
  

Therefore close of business T+2 (standard 2002 ISDA), T+4 (standard 1992 ISDA)

• Section {{{{{1}}}|6(e)}} notice: TheSection {{{{{1}}}|6(e)}} notice terminating the Transactions may only be served after close of business at the expiry of the grace period, so therefore the first day on which a termination notice following a failure to pay {{{{{1}}}|Event of Default}} can be effective under an ISDA Master Agreement is T+3 (2002 ISDA) or T+5 1992 ISDA.