Reflections On The Metavante Decision And The ISDA Master Agreement

On 15 September 2009¹ the judge responsible for the Lehman bankruptcy proceedings in the United States held that Metavante Corporation ("Metavante") could not rely on Section 2(a)(iii) of the ISDA Master Agreement to suspend payments to Lehman Brothers Special Financing, Inc. ("LBSF"). Specifically, Judge Peck held that the safe harbour provisions in the US bankruptcy code protected a nondefaulting party's contractual rights to liquidate, terminate or accelerate swaps and to net termination values but did not provide a basis to withhold performance under a swap if it did not terminate. The ruling in the Metavante case contrasts with that in a 2003 case heard in Australia relating to the Enron collapse² which upheld the right to suspend payments. Commentators are reasonably asking: if the US bankruptcy regime has taken one position and the Australian insolvency regime another, what will be the position taken in other jurisdictions?