subsections 14(3) and (5) of the PSN Act) provides a strong foundation for the protections to be provided in this Bill. Additionally, the protection provided Part 4 in order for the termination of obligations, the netting of obligations and any payment made by a party under the contract to discharge a net obligation not to be void or voidable in the external administration will be extended to acts taken in respect of the provision of collateral, including creation and enforcement of security (including the application of proceeds). Subsection 14(3) One related issue which has arisen during previous consultation processes in 2011 and 2014 relates to a drafting oversight in the PSN Act regarding subsection 14(3) which prevents a party to a closeout netting contract misusing the protections granted under the PSN Act. The current wording of subsection 14(3) of the PSN Act may not adequately prevent a party from abusing the PSN Act protections. This Bill prevents such an outcome. Expanded definition of administration’ ‘external The existing definition of administration’ in section 5 ‘external of the PSN Act does not explicitly refer to certain types of resolution procedures that do not neatly fall into the traditional conception of an insolvency proceeding conducted for the benefit of creditors. This Bill will expand the definition to explicitly cover resolution measures for bank and nonbank financial institutions, such as the statutory management regime for Australian ADIs under the Banking Act and the judicial management regime for life companies and general insurers under the Life Insurance Act and Insurance Act respectively. Accordingly, the definition of administration’ will be ‘external amended to include all types of traditional insolvency proceedings and more recent processes in the nature of (the statutory ‘resolution’ management to which an ADI may be subject and the judicial management to which an insurer or life company may be subject). Part 2 Certainty for application of stays on closeout rights — Introduction Currently, the stays imposed under the Industry Acts are potentially inconsistent with the crucial protections provided to closeout rights under derivatives arrangements under the PSN Act. Similarly, the operation of Australian resolution stays is not consistent with the approach adopted in other important jurisdictions (such as the European Union). This Bill sets out amendments to ensure, to the extent possible, that Australian law more closely reflects international best practice which has developed in recent years following the financial crisis.
subsections 14(3) and (5) of the PSN Act) provides a strong foundation for the protections to be provided in this Bill. Additionally, the protection provided Part 4 in order for the termination of obligations, the netting of obligations and any payment made by a party under the contract to discharge a net obligation not to be void or voidable in the external administration will be extended to acts taken in respect of the provision of collateral, including creation and enforcement of security (including the application of proceeds). Subsection 14(3) One related issue which has arisen during previous consultation processes in 2011 and 2014 relates to a drafting oversight in the PSN Act regarding subsection 14(3) which prevents a party to a closeout netting contract misusing the protections granted under the PSN Act. The current wording of subsection 14(3) of the PSN Act may not adequately prevent a party from abusing the PSN Act protections. This Bill prevents such an outcome. Expanded definition of ‘external administration’ The existing definition of ‘external administration’ in section 5 of the PSN Act does not explicitly refer to certain types of resolution procedures that do not neatly fall into the traditional conception of an insolvency proceeding conducted for the benefit of creditors. This Bill will expand the definition to explicitly cover resolution measures for bank and nonbank financial institutions, such as the statutory management regime for Australian ADIs under the Banking Act and the judicial management regime for life companies and general insurers under the Life Insurance Act and Insurance Act respectively. Accordingly, the definition of ‘external administration’ will be amended to include all types of traditional insolvency proceedings and more recent processes in the nature of ‘resolution’ (the statutory management to which an ADI may be subject and the judicial management to which an insurer or life company may be subject). Part 2 — Certainty for application of stays on closeout rights Introduction Currently, the stays imposed under the Industry Acts are potentially inconsistent with the crucial protections provided to closeout rights under derivatives arrangements under the PSN Act. Similarly, the operation of Australian resolution stays is not consistent with the approach adopted in other important jurisdictions (such as the European Union). This Bill sets out amendments to ensure, to the extent possible, that Australian law more closely reflects international best practice which has developed in recent years following the financial crisis.
C2015-052_Explanatory-Memorandum.docx