Bankruptcy - ISDA Provision
Speed Read
In essence the 2002 ISDA defintion amounts to the following:
The Counterparty, any Credit Support Provider or Specified Entity:―
- Dissolved: is dissolved (other than pursuant to a merger);
- Insolvent: becomes insolvent, unable to pay debts, or admits that in writing;
- Composition with Creditors: makes a composition its creditors;
- Involvency Proceedings: (A) becomes subject to insolvency (or similar) proceedings instituted by a regulator; or (B) becomes subject to insolvency (or similar) proceedings instituted by anyone other than a regulator which result in a winding up order or are not discharged within 15 days
- Voluntary Winding Up: has a resolution passed for its winding-up (other than pursuant to a merger);
- Put in Administration: has an administrator, provisional liquidator, or similar appointed for it or for all or substantially all its assets;
- Security Exercised: has a secured party take possession of all or substantially all its assets which process is not dismissed within 15 days ;
- Analogous events: Causes or is subject to any event which, under the applicable laws of any jurisdiction, has an analogous effect to any of the above; or
- Action in furtherance: takes any action in furtherance of any of the above.
Analysis
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.
In gory detail
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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