The US Supreme Court has unanimously held that a debtor cannot void a wholly underwater second mortgage in Chapter 7 bankruptcy proceedings. The decision comes in the consolidated cases of Bank of America, N.A. v. Caulkett, No. 13-1421, and Bank of America, N.A. v. Toledo-Cardona, No. 14-163.

Section 506(a) of the Bankruptcy Code provides that a creditor’s claim is a “secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property”—that is, it is a secured claim for an amount equal to the present value of the collateral—and is an “unsecured claim” for the remainder. Section 506(d) provides that, “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”

Several industry associations (ISDA, BBA and FOA – the futures and options association) have responded to a Treasury informal consultation on the need to carve out from English insolvency law the porting of clearing clients’ positions and margin. They agree on the need to ensure certainty around the porting option when a clearing member becomes insolvent. EMIR’s porting option should also apply where the clearing member is acting through back-to-back transactions and holds the client’s margin. The associations note that porting should be subject to agreement.

FSA has launched a consultation and discussion paper on proposals to bring the Client Assets Sourcebook (CASS) in line with EMIR. More generally, it wants to make CASS client money pooling provisions more flexible and address the problems identified during the Lehman and MF Global insolvencies.

The proposals cover the following: