Insolvency - GMSLA Provision

GMSLA Anatomy™

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10.1(d) in a Nutshell™

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Original text

10.1(d) an Act of Insolvency occurring with respect to Lender or Borrower, provided that, where the Parties have specified in paragraph 5 of the Schedule that Automatic Early Termination shall apply, an Act of Insolvency which is the presentation of a petition for winding up or any analogous proceeding or the appointment of a liquidator or analogous officer of the Defaulting Party shall not require the Non Defaulting Party to serve written notice on the Defaulting Party (Automatic Early Termination);

The Varieties of Stock Lending Experience
Subject	2010 GMSLA	2018 Pledge GMSLA	1995 OSLA
Applicability/Preamble	1	1	Preamble
Interpretation	2	2	1
Definitions	2.1	2.1	1
Loans of Securities	3	3	2
Delivery	4	4	3
Collateral	5	5	6
Distributions and Corporate Actions	6	6	4 (“Rights and Title”)
Rates for Loans and Collateral	7	7	4
Delivery of Equivalent Securities	8	8	7
Failure to Deliver	9	9	N/A
Events of Default	10	10	12
Consequences of Events of Default	11	11	8 (“Set-off”)
Taxation	12	12	9
Lender's Warranties	13	13	10
Borrower's Warranties	14	14	11
Interest on Outstanding Payments	15	15	13
Termination of Agreement	16	16	15
Single Agreement	17	17	N/A
Severance	18	18	18
Specific Performance	19	19	19
Notices	20	20	20
Assignment	21	21	21
Non-Waiver	22	21	22
Governing Law and Jurisdiction	23	23	26
Time	24	24	24
Recording	25	25	25
Waiver of Immunity	26	26	N/A
Expenses	N/A	27	N/A
Miscellaneous	27	28	N/A

Resources and Navigation

Navigation 2010 GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · Schedule · Agency Annex · Addendum for Pooled Principal Agency Loans 2018 Pledge GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · Schedule · Agency Annex Stock Loan owner’s manuals: 2010 GMSLA · 2000 GMSLA · Pledge GMSLA · OSLA Index: Click ᐅ to expand: GMSLA Pledge GMSLA

Comparisons

Redlines

2010 ⇒ 2018: Redline of the 2010 GMSLA vs. the 2018 Pledge GMSLA: comparison (and in reverse)

Discussion

The 2018 Pledge GMSLA does not have an Automatic Early Termination provision for reasons explained below.

Therefore, the obvious comparison is with the ISDA Master Agreement’s Automatic Early Termination regime — ISDA’s crack drafting squad™ dreamed up this loopy concept in the first place — and you should go to that place for discussion.

Basics

Here is the definition of Act of Insolvency:

Act of Insolvency means in relation to either Party:

(a) its making a general assignment for the benefit of, or entering into a reorganisation, arrangement, or composition with creditors; or

(b) its stating in writing that it is unable to pay its debts as they become due; or

(c) its seeking, consenting to or acquiescing in the appointment of any trustee, administrator, receiver or liquidator or analogous officer of it or any material part of its property; or

(d) the presentation or filing of a petition in respect of it (other than by the other Party to this Agreement in respect of any obligation under this Agreement) in any court or before any agency alleging or for the bankruptcy, winding up or insolvency of such Party (or any analogous proceeding) or seeking any reorganisation, arrangement, composition, re adjustment, administration, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such petition not having been stayed or dismissed within 30 days of its filing (except in the case of a petition for winding-up or any analogous proceeding in respect of which no such 30 day period shall apply); or

(e) the appointment of a receiver, administrator, liquidator or trustee or analogous officer of such Party over all or any material part of such Party’s property; or

(f) the convening of any meeting of its creditors for the purpose of considering a voluntary arrangement as referred to in Section 3 of the Insolvency Act 1986 (or any analogous proceeding);

Keen-eyed observers will note that some of these are more like insolvency events and others more like bankruptcy events. The ISDA Master Agreement makes a similar mistake. We could do the same exercise:

Practical insolvency events: (a) (entering a composition with creditors) (b) (admitting it cannot pay its debts)

True bankruptcy events: (c) (seeking the appointment of an administrator) (d) (presentation of a formal bankruptcy petition) (e) (a liquidator being appointed)

Hybrid events: (f) (discussing a voluntary arrangement)

Observers will also note that the ISDA is more detailed. We compare and contrast in the Premium section.

The 2010 GMSLA (but not the 2018 Pledge GMSLA) has an ISDA-style Automatic Early Termination trigger. There is more on this in the premium section, but those wanting a deep background on the concept — there is a lot of deep background, so strap yourself in for a long night — should consult the ISDA page on that topic, here: Automatic Early Termination.

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JC’s “nutshell” summary of the clause
Background reading and long-form essays
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References