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Payment Systems and Netting Bill 1998

Part 3 Integrity of approved netting arrangements

   

10   Effectiveness of approved multilateral netting arrangements

             (1)  If an approved netting arrangement is entered into in circumstances that are within Commonwealth constitutional reach:

                     (a)  obligations may be terminated, termination values may be calculated and a net amount become payable in accordance with the arrangement; and

                     (b)  paragraph (a) applies despite:

                              (i)  any disposal of rights that may be netted under the arrangement; or

                             (ii)  the creation of any encumbrance, or any other interest, in relation to those rights; or

                            (iii)  the operation of any encumbrance, or any other interest, in relation to those rights that is created after the commencement of this section;

                            in contravention of a prohibition in the arrangement; and

                     (c)  for the purposes of any law, the assets and liabilities of a party to the arrangement are taken:

                              (i)  to include any net obligation owed to a party under the arrangement; and

                             (ii)  not to include obligations terminated under the arrangement.

             (2)  If a party to an approved netting arrangement goes into external administration:

                     (a)  the party may do anything permitted or required by the arrangement in order to net:

                              (i)  obligations incurred before or on the day on which the party goes into external administration; and

                             (ii)  net obligations if the obligations that are directly or indirectly netted are incurred before or on the day on which the party goes into external administration; and

                     (b)  the obligations that are, or have been, netted under the arrangement are to be disregarded in the external administration (but see subsection (4)); and

                     (c)  any net obligation owed by the party under the arrangement that has not been discharged is provable in the external administration; and

                     (d)  any net obligation owed to the party under the arrangement that has not been discharged may be recovered by the external administrator for the benefit of creditors; and

                     (e)  the netting and any payment made by the party under the arrangement to discharge a net obligation is not to be voidable in the external administration.

Note 1:       Paragraph (a)—This paragraph only authorises the party to take any action to arrive at a net obligation; it does not authorise the party to settle the net obligation by payment.

Note 2:       By giving express recognition to approved netting arrangements, subsections (1) and (2) remove the basis for arguing that the arrangements are void as contrary to public policy embodied in the laws dealing with insolvency.

             (3)  Subsections (1) and (2) have effect despite any other law (including the specified provisions).

Note:          Section 5 defines specified provisions .

             (4)  If:

                     (a)  a party to an approved netting arrangement goes into external administration; and

                     (b)  an obligation owed by the party to another party to the arrangement has been netted under the arrangement; and

                     (c)  a direct payment by the party owing the obligation to the other party would have been voidable in the external administration if it had been made to settle the obligation on the day on which the netting occurred;

the external administrator may recover from the other party for the benefit of creditors an amount equal to the amount of the obligation.

11   Application for approval of netting arrangement

             (1)  A person may apply to the Reserve Bank for approval of a multilateral netting arrangement.

             (2)  The application must:

                     (a)  be in the prescribed form; and

                     (b)  be accompanied by the documents specified in the regulations or required by the Reserve Bank.

12   Reserve Bank may approve netting arrangement

             (1)  The Reserve Bank may approve the arrangement if it is satisfied that:

                     (a)  systemic disruption in the financial system could result if a participant went into external administration and the arrangement were not approved under this section; and

                     (b)  the arrangement provides for netting to occur at least once on each business day; and

                     (c)  the rules governing the arrangement establish a coordinator for the arrangement; and

                     (d)  the coordinator of the arrangement has the resources, competency and integrity needed to administer the arrangement; and

                     (e)  the rules governing the arrangement provide that if a party to the arrangement goes into external administration:

                              (i)  the party must notify the coordinator as soon as practicable; and

                             (ii)  the coordinator may exclude the party from the arrangement; and

                      (f)  the rules governing the arrangement require a party to the arrangement to notify the coordinator as soon as practicable if they have reasonable grounds to suspect that another party to the arrangement is insolvent;

and of any other matters specified in the regulations.

             (2)  An approval:

                     (a)  must be given in writing; and

                     (b)  may be given subject to the terms and conditions specified in the approval.

13   Qualified privilege

                   A party to an approved netting arrangement has qualified privilege for a notice they give the coordinator under the rules governing the arrangement that they have reasonable grounds to suspect that another party to the arrangement is insolvent.