On September 15, 2009, the United States Bankruptcy Court of the Southern District of New York ordered Metavante Corporation (“Metavante”) to make payments to Lehman Brothers Special Financing Inc. (“LBSF”) under a prepetition interest rate swap agreement guaranteed by Lehman Brothers Holdings Inc. (“LBHI” and, together with LBSF, “Lehman”) after Metavante had suspended ordinary course settlement payments under the swap.1 Metavante claimed a contractual right to withhold payment under Section 2(a)(iii) of the 1992 ISDA Master Agreement as a result of Lehman’s bankruptcy.

Recent changes in Peruvian insolvency laws1 will now allow financial institutions and insurance company counterparties to close-out and net obligations under derivatives and repurchase agreements with Peruvian financial institutions or insurance companies which become subject to bankruptcy proceedings.

On June 28, 2016, Judge Chapman of the U.S. Bankruptcy Court for the Southern District of New York ruled in Lehman Brothers Special Financing Inc. v. Bank of America National Association, et al.(Adv. Proc. No. 10-03547 (Bankr. S.D.N.Y.

On January 25, 2010, the U.S. Bankruptcy Judge Peck struck down a provision that used the bankruptcy of Lehman Brothers Holdings, Inc. (“LBHI”) to trigger subordination of a Lehman subsidiary’s swap claim against a securitization vehicle in the United Kingdom.1

The collapse of Lehman Brothers was a major test of the procedures developed by market participants to address counterparty credit risk and has uncovered deficiencies in risk management policies and their application.

On August 27, 2007, United States District Judge Shira Scheindlin held that Springfield Associates, an innocent transferee of a claim from Citigroup against Enron, was not subject to certain counterclaims and defenses so long as Springfield was a “purchaser” and not an “assignee” of the claim. See In re Enron Corp. v. Springfield Assocs. L.L.C., No. 07 Civ. 1957, 2007 U.S. Dist. LEXIS 63129 (S.D.N.Y. Aug. 27, 2007).

Court holds that distributions made pursuant to priority payment provisions contained in CDO transactions are protected by Section 560 of the Bankruptcy Code

Summary

A new law which came into force on 8 August 2015 now permits a French court to enforce debt-for-equity swaps. Where the debtor company is in judicial reorganisation proceedings (redressement judiciaire) and if certain conditions are met, the court can either:

The US Bankruptcy Court has issued a declaratory judgment that the relevant clause flipping priority from the swap counterparty to the noteholders constituted an ipso facto provision and was therefore unenforceable – a judgment that produces a different result under US law to that established by the Court of Appeal in the Perpetual Trustee case from November 2009.

The judge responsible for the Lehman bankruptcy proceedings in the United States has found that the provisions of the US bankruptcy code that exempt swap agreements and master netting agreements from the application of the Code's automatic stay and other relevant provisions do not permit a party to an ISDA Master Agreement to suspend performance under Section 2 (a) (iii) of the master agreement.