UBS terminated its ISDA Master and FX transactions with Lehman Brothers Inc., was obligated to return about $23 million in collateral, wanted to set-off against that $23 million amounts owing by LBI to UBS affiliates as contemplated by the cross-affiliates set-off provision.

Bank of America N.A. v. Lehman Brothers Holdings Inc. and Lehman Brothers Special Financing Inc. 439 B.R. 811 (2010) (U.S. Bankr. Ct., S.D.N.Y.)

If you were waiting to hear what the English Court of Appeal had to say about the lower court decision in Marine Trade S.A. v. Pioneer Freight Futures Co. Ltd. you’ll be disappointed, as the appeal was dismissed by consent of the parties on October 22, 2010.

That darn Lehman Brothers bankruptcy sure is raising some interesting insolvency issues for derivatives market participants (and their lawyers of course). It’s interesting (at least for us insolvency nerds) to think about how some of those issues might play out under Canadian insolvency laws. Here are some thoughts on one of the recent cases with my Canadian spin.

Earlier this year Abitibi-Consolidated Inc. (Abitibi) and various related entities proposed to enter into an arrangement with certain classes of its creditors relying on the plan of arrangement provisions in the Canada Business Corporations Act (CBCA). It is unusual to propose a corporate plan with respect to a company's debt. The CBCA plan of arrangement provision is not fundamentally an insolvency law. The procedure is most often used to restructure securityholder relationships within solvent companies and that is the primary intention.

In the Spring of 2007, Canada’s Parliament amended several federal insolvency statutes so as to transfer the definition of the class of protected contracts known as “eligible financial contracts” (EFCs) from the federal insolvency statutes themselves to their respective associated regulations. On November 15, the Treasury Board approved the finalized regulations to the Bankruptcy and Insolvency Act, the Winding-up and Restructuring Act, the Companies’ Creditors Arrangement Act, and the Canada Deposit Insurance Corporation Act.

2007 BCSC 267 (B.C. Supreme Court, Feb. 28, 2007)

Trustee in bankruptcy must affirm swap contracts to take advantage of them but is not personally liable if the contracts end up being out of the money - While contract gave buyer a termination right on bankruptcy, it could choose not to exercise this option and leave it to the trustee to decide whether or not to affirm the swap and take the risk that the estate will end up out of the money