Qualified Financial Contracts and Netting Under U.S. Insolvency Law

Cleary Gottlieb is pleased to provide our handbook regarding the safe harbors under the Bankruptcy Code, Federal Deposit Insurance Act and other major U.S. insolvency regimes.

A firm’s ability to close out transactions with an insolvent counterparty and net obligations arising under those transactions is often crucial for credit, capital, margin, risk and other purposes.

Although a number of U.S. insolvency laws provide “safe harbors” protecting close-out and netting rights, the types of transactions to which these safe harbors apply, the parties that may exercise rights under the safe harbors and the restrictions on, and exceptions from, the exercise of close-out and netting rights will vary depending on the particular insolvency regime to which the counterparty is subject.

Cleary Gottlieb’s handbook entitled Qualified Financial Contracts and Netting Under U.S. Insolvency Law summarizes the statutory provisions, case law and regulations concerning the safe harbors under the following regimes:

  • The U.S. Bankruptcy Code
  • The Securities Investor Protection Act (SIPA)
  • The bank resolution provisions of the Federal Deposit Insurance Act (FDIA)
  • The Orderly Liquidation Authority (OLA) provisions of Title II of the Dodd-Frank Act

For each of these regimes, the handbook examines:

  • The limitations on creditors’ rights absent the safe harbors
  • The types of transactions and counterparties covered by the safe harbors
  • The rights protected by the safe harbors
  • The safe harbors’ anti-avoidance provisions

The handbook additionally includes discussions of:

  • The safe harbors under the model insurance insolvency laws published by the National Association of Insurance Commissioners
  • The netting provisions of the Federal Deposit Insurance Corporation Improvement Act

For ease of reference, the handbook contains a detailed table of contents at the beginning and a comprehensive table to authorities at the end. The research in the handbook is current through April 25, 2017, and will be updated as developments occur.

An electronic version of the handbook may be found here, and a print-ready version is available here.

Please reach out to one of the authors for a physical copy or any of the materials referenced in the handbook.