Event of Default and Illegality - 1992 ISDA Provision

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1992 ISDA Master Agreement
A Jolly Contrarian owner’s manual

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Resources Wikitext | Nutshell wikitext | 2002 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger Without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Tax Event5(b)(iii) Tax Event Upon Merger5(b)(iv) Credit Event Upon Merger5(b)(v) Additional Termination Event

Index — Click ᐅ to expand:

Section 5(c) in a Nutshell
Use at your own risk, campers!

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Full text of Section 5(c)

5(c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default.
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Related agreements and comparisons

Related Agreements
Click here for the text of Section 5(c) in the 2002 ISDA
Click to compare this section in the 1992 ISDA and 2002 ISDA.

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Content and comparisons

A simple piddling match between Events of Default and Illegality in the 1992 ISDA makes way for a full-blown hierarchy of competing circumstances justifying closeout of the ISDA Master Agreement in the 2002 ISDA.


Compared with its Byzantine equivalent in section 5(c) of the 2002 ISDA this is a Spartan cause indeed: in 1992 ISDA’s crack drafting squad™ assumed all ISDA users would be cold, rational economists who instinctively appreciate the difference between causation and correlation — or hadn’t considered the virtual certainty that they might not be — and therefore did not spell it out, but we will: Section 5(c) will help you out where your Event of Default is itself, and of itself, the Illegality, but it will not help where your Breach of Agreement simply is coincidental with one.

Force Majeure upgrade

Note if you have retrofitted a Force Majeure clause (as is common amongst latter-day users of the 1992 ISDA) you will have quite the tedious job wiring the consequences of your new Force Majeure events into the existing close-out mechanics in the 1992 ISDA preprint, which doesn’t contemplate force majeure but will have to. You could always use the ISDA Illegality and Force Majeure Protocol for that, of course.

General discussion

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See also

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