9/11/00
Bankruptcy Code Revisions Filed on September 7, 2000
After referrals and consideration by the Banking, Commerce and Judiciary Committees, the Report for HR 1161, Financial Contract Netting Improvement Act of 1999, was filed with the House on September 7. This clears the measure for floor consideration (if time can be made for the legislation).
The bill revises banking and bankruptcy laws with respect to the termination and netting of financial contracts.
The relevant bankruptcy codes revisions are provided below.
SEC. 8. BANKRUPTCY CODE AMENDMENTS.
(a) DEFINITIONS OF FORWARD CONTRACT, REPURCHASE AGREEMENT, SECURITIES CLEARING AGENCY, SWAP AGREEMENT, COMMODITY CONTRACT, AND SECURITIES CONTRACT- Title 11, United States Code, is amended-- (1) in section 101--
(A) in paragraph (25)--
(i) by striking `means a contract' and inserting `means--
`(A) a contract'; (ii) by striking `, or any combination thereof or option thereon;' and inserting `, or any other similar
agreement;'; and (iii) by adding at the end the following:
`(B) a combination of agreements or
transactions referred to in subparagraphs (A) and (C);
`(C) an option to enter into an agreement or
transaction referred to in subparagraph (A) or (B);
`(D) a master netting agreement that
provides for an agreement or transaction referred to in subparagraph (A),
(B), or (C), together with all supplements to such master netting agreement,
without regard to whether such master netting agreement provides for an
agreement or transaction that is not a forward contract under this
paragraph, except that such master netting agreement shall be considered to
be a forward contract under this paragraph only with respect to each
agreement or transaction under such master netting agreement that is
referred to in subparagraph (A), (B) or (C); or
`(E) a security agreement or arrangement, or
other credit enhancement, directly pertaining to a contract, option,
agreement, or transaction referred to in subparagraph (A), (B), (C), or (D),
but not to exceed the actual value of such contract, option, agreement, or
transaction on the date of the filing of the petition;';
(B) by amending paragraph (47) to read as
follows:
`(47) `repurchase agreement' and `reverse
repurchase agreement'--
`(A) mean--
`(i) an agreement, including related terms,
which provides for the transfer of--
`(I) a certificate of deposit,
mortgage-related security (as defined in the Securities Exchange Act of
1934), mortgage loan, interest in a mortgage-related security or mortgage
loan, eligible bankers' acceptance,
qualified foreign government security; or
`(II) security that is a direct obligation
of, or that is fully guaranteed by, the United States or an agency of the
United States against the transfer of funds by the transferee of such
certificate of deposit, eligible bankers' acceptance, security, loan, or
interest;
with a simultaneous agreement by such
transferee to transfer to the transferor thereof a certificate of deposit,
eligible bankers' acceptance, security, loan, or interest of the kind
described in subclause (I) or (II), at a date certain not later than 1 year
after the transferor's transfer or on demand, against the transfer of funds;
`(ii) a combination of agreements or
transactions referred to in clauses (i) and (iii);
`(iii) an option to enter into an agreement
or transaction referred to in clause (i) or (ii);
`(iv) a master netting agreement that
provides for an agreement or transaction referred to in clause (i), (ii), or
(iii), together with all supplements to such master netting agreement,
without regard to whether such master netting agreement provides for an
agreement or transaction that is not a repurchase agreement under this
subparagraph, except that such master netting agreement shall be considered
to be a repurchase agreement under this subparagraph only with respect to
each agreement or transaction under such master netting agreement that is
referred to in clause (i), (ii), or (iii); or
`(v) a security agreement or arrangement, or
other credit enhancement, directly pertaining to a contract referred to in
clause (i), (ii), (iii), or (iv), but not to exceed the actual value of such
contract on the date of the filing of the petition; and
`(B) do not include a repurchase obligation
under a participation in a commercial mortgage loan;
and, for purposes of this paragraph, the
term `qualified foreign government security' means a security that is a
direct obligation of, or that is fully guaranteed by, the central government
of a member of the Organization for Economic Cooperation and Development;';
(C) in paragraph (48) by inserting `or
exempt from such registration under such section pursuant to an order of the
Securities and Exchange Commission' after `1934'; and
(D) by amending paragraph (53B) to read as
follows:
`(53B) `swap agreement' means--
`(A) an agreement, including the terms and
conditions incorporated by reference in such agreement, that is--
`(i) an interest rate swap, option, future,
or forward agreement, including a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis swap;
`(ii) a spot, same day-tomorrow,
tomorrow-next, forward, or other foreign exchange or precious metals
agreement;
`(iii) a currency swap, option, future, or
forward agreement;
`(iv) an equity index or an equity swap,
option, future, or forward agreement;
`(v) a debt index or a debt swap, option,
future, or forward agreement;
`(vi) a credit spread or a credit swap,
option, future, or forward agreement; or
`(vii) a commodity index or a commodity
swap, option, future, or forward agreement;
`(B) an agreement or transaction similar to
an agreement or transaction referred to in this paragraph that--
`(i) is currently, or in the future becomes,
regularly entered into in the swap market (including terms and conditions
incorporated by reference therein); and
`(ii) is a forward, swap, future, or option
on a rate, currency, commodity, equity security, or other equity instrument,
on a debt security or other debt instrument, or on an economic index or
measure of economic risk or value;
`(C) a combination of agreements or
transactions referred to in this paragraph;
`(D) an option to enter into an agreement or
transaction referred to in this paragraph;
`(E) a master netting agreement that
provides for an agreement or transaction referred to in subparagraph (A),
(B), (C), or (D), together with all supplements to such master netting
agreement and without regard to whether such master netting agreement
contains an agreement or transaction described in any such subparagraph, but
only with respect to each agreement or transaction referred to in any such
subparagraph that is under such master netting agreement; or
`(F) is applicable for purposes of this
title only and shall not be construed or applied so as to challenge or
affect the characterization, definition, or treatment of any swap agreement
under any other statute, regulation, or rule, including the Securities Act
of 1933, the Securities Exchange Act of 1934, the Public Utility Holding
Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company
Act of 1940, the Investment Advisers Act of 1940, the Securities Investor
Protection Act of 1970, the Commodity Exchange Act, and the regulations
prescribed by the Securities and Exchange Commission or the Commodity
Futures Trading Commission.';
(2) by amending section 741(7) to read as
follows:
`(7) `securities contract'--
`(A) means--
`(i) a contract for the purchase, sale, or
loan of a security, a mortgage loan or an interest in a mortgage loan, a
group or index of securities, or mortgage loans or interests therein
(including an interest therein or based on the value thereof), or option on
any of the foregoing, including an option to purchase or sell any of the
foregoing;
`(ii) an option entered into on a national
securities exchange relating to foreign currencies;
`(iii) the guarantee by or to a securities
clearing agency of a settlement of cash, securities, mortgage loans or
interests therein, group or index of securities, or mortgage loans or
interests therein (including any interest therein or based on the value
thereof), or option on any of the foregoing, including an option to purchase
or sell any of the foregoing;
`(iv) a margin loan;
`(v) any other agreement or transaction that
is similar to an agreement or transaction referred to in this subparagraph;
`(vi) a combination of the agreements or
transactions referred to in this subparagraph;
`(vii) an option to enter into an agreement
or transaction referred to in this subparagraph;
`(viii) a master netting agreement that
provides for an agreement or transaction referred to in clause (i), (ii),
(iii), (iv), (v), (vi), or (vii), together with all supplements to such
master netting agreement, without regard to whether such master netting
agreement provides for an agreement or transaction that is not a securities
contract under this subparagraph, except that such master netting agreement
shall be considered to be a securities contract under this subparagraph only
with respect to each agreement or transaction under such master netting
agreement that is referred to in clause (i), (ii), (iii), (iv), (v), (vi),
or (vii); or
`(ix) a security agreement or arrangement,
or other credit enhancement, directly pertaining to a contract referred to
in this subparagraph, but not to exceed the actual value of such contract on
the date of the filing of the petition; and
`(B) does not include a purchase, sale, or
repurchase obligation under a participation in a commercial mortgage loan;';
and
(3) in section 761(4)--
(A) by striking `or' at the end of
subparagraph (D); and
(B) by adding at the end the following:
`(F) any other agreement or transaction that
is similar to an agreement or transaction referred to in this paragraph;
`(G) a combination of the agreements or
transactions referred to in this paragraph;
`(H) an option to enter into an agreement or
transaction referred to in this paragraph;
`(I) a master netting agreement that
provides for an agreement or transaction referred to in subparagraph (A),
(B), (C), (D), (E), (F), (G), or (H), together with all supplements to such
master netting agreement, without regard to whether such master netting
agreement provides for an agreement or transaction that is not a commodity
contract under this paragraph, except that such master netting agreement
shall be considered to be a commodity contract under this paragraph only
with respect to each agreement or transaction under such master netting
agreement that is referred to in subparagraph (A), (B), (C), (D), (E), (F),
(G), or (H); or
`(J) a security agreement or arrangement, or
other credit enhancement, directly pertaining to a contract referred to in
this paragraph, but not to exceed the actual value of such contract on the
date of the filing of the petition;'.
(b) DEFINITIONS OF FINANCIAL INSTITUTION, FINANCIAL
PARTICIPANT, AND FORWARD CONTRACT MERCHANT- Section 101 of title 11, United
States Code, is amended--
(1) by amending paragraph (22) to read as
follows:
`(22) `financial institution' means--
`(A) a Federal reserve bank, or an entity
that is a commercial or savings bank, industrial savings bank, savings and
loan association, trust company, or receiver or conservator for such entity
and, when such Federal reserve bank, receiver, or conservator or entity is
acting as agent or custodian for a customer in connection with a securities
contract, as defined in section 741 of this title, such customer; or
`(B) in connection with a securities
contract, as defined in section 741 of this title, an investment company
registered under the Investment Company Act of 1940;';
(2) by inserting after paragraph (22) the
following:
`(22A) `financial participant' means an
entity that is a party to a securities contract, commodity contract or
forward contract, or on the date of the filing of the petition, has a
commodity contract (as defined in section 761 of this title) with the debtor
or any other entity (other than an affiliate) of a total gross dollar value
of at least $1,000,000,000 in notional or actual principal amount
outstanding on any day during the previous 15-month period, or has gross
mark-to-market positions of at least $100,000,000 (aggregated across
counterparties) in any such agreement or transaction with the debtor or any
other entity (other than an affiliate) on any day during the previous
15-month period;'; and
(3) by amending paragraph (26) to read as
follows:
`(26) `forward contract merchant' means a
Federal reserve bank, or an entity whose business consists in whole or in
part of entering into forward contracts as or with merchants or in a
commodity, as defined or in section 761 of this title, or any similar good,
article, service, right, or interest which is presently or in the future
becomes the subject of dealing or in the forward contract trade;'.
(c) DEFINITION OF MASTER NETTING AGREEMENT AND
MASTER NETTING AGREEMENT PARTICIPANT- Section 101 of title 11, United States
Code, is amended by inserting after paragraph (38) the following new
paragraphs:
`(38A) the term `master netting agreement'
means an agreement providing for the exercise of rights, including rights of
netting, setoff, liquidation, termination, acceleration, or closeout, under
or in connection with 1 or more contracts that are described in any 1 or
more of paragraphs (1) through (5) of section 561(a), or any security
agreement or arrangement or other credit enhancement related to 1 or more of
the foregoing. If a master netting agreement contains provisions relating to
agreements or transactions that are not contracts described in paragraphs
(1) through (5) of section 561(a), the master netting agreement shall be
deemed to be a master netting agreement only with respect to those
agreements or transactions that are described in any 1 or more of the
paragraphs (1) through (5) of section 561(a);
`(38B) the term `master netting agreement
participant' means an entity that, at any time before the filing of the
petition, is a party to an outstanding master netting agreement with the
debtor;'.
(d) SWAP AGREEMENTS, SECURITIES CONTRACTS, COMMODITY
CONTRACTS, FORWARD CONTRACTS, REPURCHASE AGREEMENTS, AND MASTER NETTING
AGREEMENTS UNDER THE AUTOMATIC-STAY-
(1) IN GENERAL- Section 362(b) of title 11,
United States Code, as amended by sections 120, 134, 139, 203 and 818, is
amended--
(A) in paragraph (6), by inserting `,
pledged to, and under the control of,' after `held by';
(B) in paragraph (7), by inserting `,
pledged to, and under the control of,' after `held by';
(C) by amending paragraph (17) to read as
follows:
`(17) under subsection (a), of the setoff by
a swap participant of a mutual debt and claim under or in connection with a
swap agreement that constitutes the setoff of a claim against the debtor for
a payment or transfer due from the debtor under or in connection with a swap
agreement against a payment due to the debtor from the swap participant
under or in connection with a swap agreement or against cash, securities, or
other property held by, pledged to, and under the control of, or due from
such swap participant to guarantee, secure, or settle a swap agreement;';
(D) in paragraph (27), by striking `or' at
the end;
(E) in paragraph (28) by striking the period
at the end and inserting `; and'; and
(F) by inserting after paragraph (28) the
following new paragraph:
`(29) under subsection (a), of the setoff by
a master netting agreement participant of a mutual debt and claim under or
in connection with 1 or more master netting agreements or any contract or
agreement subject to such agreements that constitutes the setoff of a claim
against the debtor for any payment or other transfer of property due from
the debtor under or in connection with such agreements or any contract or
agreement subject to such agreements against any payment due to the debtor
from such master netting agreement participant under or in connection with
such agreements or any contract or agreement subject to such agreements or
against cash, securities, or other property held by, pledged or and under
the control of, or due from such master netting agreement participant to
margin, guarantee, secure, or settle such agreements or any contract or
agreement subject to such agreements, to the extent such participant is
eligible to exercise such offset rights under paragraph (6), (7), or (17)
for each individual contract covered by the master netting agreement in
issue.'.
(2) LIMITATION- Section 362 of title 11,
United States Code, is amended by adding at the end the following:
`(i) LIMITATION- The exercise of rights not subject
to the stay arising under subsection (a) pursuant to paragraph (6), (7), or
(17) of subsection (b) shall not be stayed by an order of a court or
administrative agency in any proceeding under this title.'.
(e) LIMITATION OF AVOIDANCE POWERS UNDER MASTER
NETTING AGREEMENT- Section 546 of title 11, United States Code, is amended--
(1) in subsection (g) (as added by section
103 of Public Law 101-311)--
(A) by striking `under a swap agreement';
(B) by striking `in connection with a swap
agreement' and inserting `under or in connection with any swap agreement';
(2) by redesignating subsection (g) (as
added by section 222(a) of Public Law 103-394) as subsection (i); and (3) by inserting before subsection (i) (as
redesignated) the following new subsection:
`(h) Notwithstanding sections 544, 545, 547, 548(a)(2)(B), and 548(b) of
this title, the trustee may not avoid a transfer made by or to a master
netting agreement participant under or in connection with any master netting
agreement or any individual contract covered thereby that is made before the
commencement of the case, and except to the extent the trustee could
otherwise avoid such a transfer made under an individual contract covered by
such master netting agreement, except under section 548(a)(1)(A) of this
title.'.
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TMA is committed to providing the most recent legislative actions affecting the corporate renewal industry. The following updates are provided by TMA's Legislative Consultant, David P. Goch, of Webster, Chamberlain & Bean in Washington, DC. Please contact David at dgoch@wc-b.com or (202) 785-9500 for more information or specific questions about the legislative information provided below.