PART 3 U.K. Modification of insolvency law

Certain legislation restricting enforcement of security not to apply to financial collateral arrangements U.K.

8.—(1) The following provisions of Schedule B1 to the Insolvency Act 1986 M1 (administration) shall not apply to any security interest created or otherwise arising under a financial collateral arrangement—

(a) paragraph 43(2) (restriction on enforcement of security or repossession of goods) including that provision as applied by paragraph 44 (interim moratorium); and

(b) paragraphs 70 and 71 (power of administrator to deal with charged property).

(2) Paragraph 41(2) of Schedule B1 to the Insolvency Act 1986 (receiver to vacate office when so required by administrator) shall not apply to a receiver appointed under a charge created or otherwise arising under a financial collateral arrangement.

(3) The following provisions of the Insolvency Act 1986M2 (administration) shall not apply in relation to any security interest created or otherwise arising under a financial collateral arrangement—

(a) sections 10(1)(b) and 11(3)(c) (restriction on enforcement of security while petition for administration order pending or order in force); and

(b) section 15(1) and 15(2) (power of administrator to deal with charged property).

(4) Section 11(2) of the Insolvency Act 1986 (receiver to vacate office when so required by administrator) shall not apply to a receiver appointed under a charge created or otherwise arising under a financial collateral arrangement.

(5) Paragraph 20 and sub-paragraph 12(1)(g) of Schedule A1 to the Insolvency Act 1986 M3 (Effect of moratorium on creditors) shall not apply (if it would otherwise do so) to any security interest created or otherwise arising under a financial collateral arrangement.

Marginal Citations

M1 Schedule B1 of the Insolvency Act 1986 was inserted by section 248 of, and Schedule 16 to the Enterprise Act 2002 c. 40.

M2 These provisions of the Insolvency Act 1986 are preserved in relation to special administration regimes by section 249 of the Enterprise Act 2002.

M3 Schedule A1 to the Insolvency Act 1986 was inserted by section 1 of, and Schedule 1 to the Insolvency Act 2000 c. 39.

Certain Northern Ireland legislation restricting enforcement of security not to apply to financial collateral arrangements U.K.

9.—(1) The following provisions of the Insolvency (Northern Ireland) Order 1989 (administration) shall not apply to any security interest created or otherwise arising under a financial collateral arrangement—

(a) Article 23(1)(b) and Article 24(3)(c) (restriction on enforcement of security while petition for administration order pending or order in force); and

(b) Article 28(1) and (2) (power of administrator to deal with charged property).

(2) Article 24(2) of that Order (receiver to vacate office at request of administrator) shall not apply to a receiver appointed under a charge created or otherwise arising under a financial collateral arrangement.

Certain insolvency legislation on avoidance of contracts and floating charges not to apply to financial collateral arrangements U.K.

10.—(1) In relation to winding-up proceedings of a collateral-taker or collateral-provider, section 127 of the Insolvency Act 1986 (avoidance of property dispositions, etc) shall not apply (if it would otherwise do so)—

(a) to any property or security interest subject to a disposition or created or otherwise arising under a financial collateral arrangement; or

(b) to prevent a close-out netting provision taking effect in accordance with its terms.

(2) Section 88 of the Insolvency Act 1986 (avoidance of share transfers, etc after winding-up resolution) shall not apply (if it would otherwise do so) to any transfer of shares under a financial collateral arrangement.

(3) Section 176A of the Insolvency Act 1986 M4 (share of assets for unsecured creditors) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a financial collateral arrangement.

(4) Section 178 of the Insolvency Act 1986 (power to disclaim onerous property) or, in Scotland, any rule of law having the same effect as that section, shall not apply where the collateral-provider or collateral-taker under the arrangement is being wound up, to any financial collateral arrangement.

(5) Section 245 of the Insolvency Act 1986 (avoidance of certain floating charges) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a security financial collateral arrangement.

(6) Section 196 of the Companies Act 1985 (payment of debts out of assets subject to a floating charge (England and Wales) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a financial collateral arrangement.

Marginal Citations

M4 Section 176A of the Insolvency Act 1986 was inserted by section 252 of the Enterprise Act 2002.

Certain Northern Ireland insolvency legislation on avoidance of contracts and floating charges not to apply to financial collateral arrangements U.K.

11.—(1) In relation to winding-up proceedings of a collateral-provider or collateral-taker, Article 107 of the Insolvency (Northern Ireland) Order 1989 (avoidance of property dispositions effected after commencement of winding up) shall not apply (if it would otherwise do so)—

(a) to any property or security interest subject to a disposition or created or otherwise arising under a financial collateral arrangement; or

(b) to prevent a close-out netting provision taking effect in accordance with its terms.

(2) Article 74 of that Order (avoidance of share transfers, etc after winding-up resolution) shall not apply (if it would otherwise do so) to any transfer of shares under a financial collateral arrangement.

(3) Article 152 of that Order (power to disclaim onerous property) shall not apply where the collateral-provider or collateral-taker under the arrangement is being wound-up, to any financial collateral arrangement.

(4) Article 207 of that Order (avoidance of certain floating charges) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a security financial collateral arrangement.

(5) Article 205 of the Companies (Northern Ireland) Order 1986 (payment of debts out of assets subject to a floating charge) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a financial collateral arrangement.

Close-out netting provisions to take effect in accordance with their terms U.K.

12.—(1) A close-out netting provision shall, subject to paragraph (2), take effect in accordance with its terms notwithstanding that the collateral-provider or collateral-taker under the arrangement is subject to winding-up proceedings or reorganisation measures.

(2) Paragraph (1) shall not apply if at the time that a party to a financial collateral arrangement entered into such an arrangement or that the relevant financial obligations came into existence—

(a) that party was aware or should have been aware that winding up proceedings or re-organisation measures had commenced in relation to the other party;

(b) that party had notice that a meeting of creditors of the other party had been summoned under section 98 of the Insolvency Act 1986, or Article 84 of the Companies (Northern Ireland) Order 1989 or that a petition for the winding-up of the other party was pending;

(c) that party had notice that an application for an administration order was pending or that any person had given notice of an intention to appoint an administrator; or

(d) that party had notice that an application for an administration order was pending or that any person had given notice of an intention to appoint an administrator and liquidation of the other party to the financial collateral arrangement was immediately preceded by an administration of that party.

(3) For the purposes of paragraph (2)—

(a) winding-up proceedings commence on the making of a winding-up order by the court; and

(b) reorganisation measures commence on the appointment of an administrator, whether by a court or otherwise.

(4) Rules 2.85 (4)(a) and (c) and 4.90 (3)(b) of the Insolvency Rules 1986 (mutual credit and set-off) shall not apply to a close-out netting provision unless sub-paragraph (2)(a) applies.

Financial collateral arrangements to be enforceable where collateral-taker not aware of commencement of winding-up proceedings or reorganisation measures U.K.

13.—(1) Where any of the events specified in paragraph (2) occur on the day of, but after the moment of commencement of, winding-up proceedings or reorganisation measures those events, arrangements and obligations shall be legally enforceable and binding on third parties if the collateral-taker can show that he was not aware, nor should have been aware, of the commencement of such proceedings or measures.

(2) The events referred to in paragraph (1) are—

(a) a financial collateral arrangement coming into existence;

(b) a relevant financial obligation secured by a financial collateral arrangement coming into existence; or

(c) the delivery, transfer, holding, registering or other designation of financial collateral so as to be in the possession or under the control of the collateral-taker.

(3) For the purposes of paragraph (1)—

(a) the commencement of winding-up proceedings means the making of a winding-up order by the court; and

(b) commencement of reorganisation measures means the appointment of an administrator, whether by a court or otherwise.

Modification of the Insolvency Rules 1986 and the Insolvency Rules (Northern Ireland) 1991 U.K.

14.  Where the collateral-provider or the collateral-taker under a financial collateral arrangement goes into liquidation or administration and the arrangement or a close out netting provision provides for, or the mechanism provided under the arrangement permits, either—

(a) the debt owed by the party in liquidation or administration under the arrangement, to be assessed or paid in a currency other than sterling; or

(b) the debt to be converted into sterling at a rate other than the official exchange rate prevailing on the date when that party went into liquidation or administration;

then rule 4.91 (liquidation), or rule 2.86 (administration) of the Insolvency Rules 1986 M5 (debt in foreign currency), or rule 4.097 of the Insolvency Rules (Northern Ireland) 1991 M6 (liquidation, debt in foreign currency), as appropriate, shall not apply unless the arrangement provides for an unreasonable exchange rate or the collateral-taker uses the mechanism provided under the arrangement to impose an unreasonable exchange rate in which case the appropriate rule shall apply.

Marginal Citations

M5 S.I. 1986/1925, amended by S.I. 2003/ 1730, S.I. 2002/1307, S.I. 2001/763, S.I. 1999/359, S.I. 1995/586, S.I. 1993/602, S.I. 1991/495, S.I. 1989/397, S.I. 1987/1919.

M6 S.R. 1991 No. 364.

Modification of the Insolvency (Scotland) Rules 1986 U.K.

15.  Where the collateral-provider or the collateral-taker under a financial collateral arrangement goes into liquidation or, in the case of a partnership, sequestration and the arrangement provides for, or the mechanism provided under the arrangement permits, either—

(a) the debt owed by the party in liquidation or sequestration under the arrangement, to be assessed or paid in a currency other than sterling; or

(b) the debt to be converted into sterling at a rate other than the official exchange rate prevailing on the date when that party went into liquidation or sequestration;

then rules 4.16 and 4.17 of the Insolvency (Scotland) Rules 1986 M7 and section 49(3) of the Bankruptcy (Scotland) Act 1985 as applied by rule 4.16 (1)(c) of those rules (claims in foreign currency), as appropriate, shall not apply unless the arrangement provides for an unreasonable exchange rate or the collateral-taker uses the mechanism provided under the arrangement to impose an unreasonable exchange rate in which case the appropriate rule shall apply.

Marginal Citations

M7 S.I.1986/1915, amended by S.I. 2003/2111, S.I. 2002/2709, S.I. 1999/1820, S.I. 1987/1921.