Even more reassurance

Author: | Published: 1 Nov 2009

A recent decision of the Supreme Court of Victoria has considered the interaction between a so-called flawed-asset provision and close-out netting rights under a securities lending agreement in circumstances where one of the parties was the subject of a receivership. The court found that close-out netting can operate in respect of obligations subject to flawed-asset provision. While the issue in the case should not arise in an unadjusted market-standard document, the decision is still welcome at a time when flawed-asset and netting provisions in market-standard documentation are subject to considerable judicial scrutiny in many jurisdictions.

The case Primebroker Securities v Fortis Clearing Sydney Pty Ltd concerned arrangements between the parties pursuant to which Fortis lent money to Primebroker under a credit facility agreement and borrowed securities from Primebroker under an amended form of Australian market-standard securities lending documentation. The parties had agreed that the two documents formed a single contractual agreement....