Bankruptcy - ISDA Provision

ISDA Anatomy™ →Go uptown In a Nutshell™ Section 5(a)(vii): 5(a)(vii). Bankruptcy. A party of its Credit Support Provider or Specified Entity:― (1) Dissolved: is dissolved (other than by merger); (2) Insolvent: becomes insolvent, unable to pay its debts, or admits it in writing; (3) Composition with Creditors: makes a composition with its creditors; (4) Insolvency Proceedings: suffers insolvency proceedings instituted by: (A) a regulator; or (B) anyone other than a regulator, and (I) it results in a winding up order; or (II) those proceedings are not discharged within 15 days; (5) Voluntary Winding Up: resolves to wind itself up (other than by merger); (6) Put in Administration: has an administrator, provisional liquidator, or similar appointed for it or for substantially all its assets; (7) Security Exercised: has a secured party take possession of, or a legal process is enforced against, substantially all its assets for at 15 days without a court dismissing it; (8) Analogous events: suffers any event which, under the laws of any jurisdiction, has the same effect as any of the above events; or (9) Action in furtherance: takes any action towards any of the above events. view template 2002 ISDA full text of Section 5(a)(vii): 5(a)(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:― (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) (A) institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official, or (B) has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person or entity not described in clause (A) above and either (I) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (II) is not dismissed, discharged, stayed or restrained in each case within 15 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 15 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) above (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or view template Click here for the text of Section 5(a)(vii) in the 1992 ISDA Index: Click ᐅ to expand: ISDA Navigation See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA. The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • FM • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUSS • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM Early Termination 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations; Payment Date • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Delta between 1992 ISDA and 2002 ISDA

There are two:

• Slightly more specific concept of insolvency: firstly, in limb 4 (insolvency proceedings) a new limb (A) has been included to cover action taken by an entity-specific regulator or supervisor (as opposed to a common or garden insolvency proceeding)
• Contracted grace period: The allowable period for dismissal of an insolvency petition (under 5(a)(vii)(4)) or the exercise of security over assets (under 5(a)(vii)(7)) is compressed from 30 days to 15 days. This, in aggregate over the whole global market, keeps many a negotiator in meaningful employment, and you will see many larger organisations amending these grace periods back to the 1992 standard of 30 days.

Regional Bankruptcy variations

• Switzerland

Market standard

The ISDA bankruptcy definition is rarely a source of great controversy (except for the grace period, as to which see below, which gets negotiated only through custom amongst ISDA negotiators because, in its wisdom, ISDA thought fit to change it in the 2002 ISDA. So you have a sort of pas-de-deux between negotiators where they argue about it for a while before getting tired, being shouted at by their business people, and moving on to something more important to argue about, like Cross Default.)

Otherwise the ISDA bankruptcy clause is a much loved and well used market standard and you often see it being imported into other agreements precisely because everyone knows it and no one really argues about it.

Grace period

Note the contraction of the grace period from 30 days to 15 days between the 1992 ISDA and the 2002 ISDA. Note also, for students of history, the problematic Automatic Early Termination situation under the 1987 ISDA.

1987 ISDA

1987 ISDA

5(a)(vii) Bankruptcy. The party or any applicable Specified Entity:–

(1) is dissolved;

(2) becomes insolvent or fails or is unable or admits in writing its inability generally to pay its debts as they become due;

(3) makes a general assignment, arrangement or composition with or for the benefit of its creditors;

(4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for the winding-up or liquidation of the party or any such Specified Entity, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition

(A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for the winding-up or liquidation of the party or such Specified Entity or

(B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof;

(5) has a resolution passed for its winding-up or liquidation;

(6) seeks or becomes subject to the appointment of an administrator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (regardless of how brief such appointment may be, or whether any obligations are promptly assumed by another entity or whether any other event described in this clause (6) has occurred and is continuing);

(7) any event occurs with respect to the party or any such Specified Entity which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (6) (inclusive); or

(8) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts;

other than in the case of clause (1) or (5) or, to the extent it relates to those clauses, clause (8), for the purpose of a consolidation, amalgamation or merger which would not constitute an event described in (viii) below; or

(view template)

• Automatic Early Termination