Commonwealth Consolidated Acts

PAYMENT SYSTEMS AND NETTING ACT 1998 - SECT 14

             (1)  If:

                     (a)  Australian law governs a close‑out netting contract; and

                     (b)  the contract is entered into in circumstances that are within Commonwealth constitutional reach;

the following provisions apply:

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

                     (d)  paragraph (c) applies despite:

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

                     (e)  for the purposes of any law, the assets of a party to the contract are taken:

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

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

             (2)  If:

                     (a)  a person who is, or has been, a party to a close‑out netting contract goes into external administration; and

                     (b)  Australian law governs either:

                              (i)  the external administration; or

                             (ii)  the contract;

the following provisions apply:

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

                     (d)  obligations that are, or have been, terminated under the contract are to be disregarded in the external administration (but see subsection (5));

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

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

                     (g)  the termination of obligations, the netting of obligations and any payment made by the party under the contract to discharge a net obligation are not to be void or voidable in the external administration.

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

             (3)  A person may not rely on the application of subsection (2) to a right or obligation under a close‑out netting contract if the person acquired the right or obligation from another person with notice that that other person was at that time unable to pay their debts as and when they became due and payable.

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

Note:          Section 5 defines specified provisions .

             (5)  Subsection (1) or (2) does not apply to an obligation owed by a party to a close‑out netting contract to another person if:

                     (a)  the party goes into external administration; and

                     (b)  the obligation is, or has been, terminated under the contract; and

                     (c)  either:

                              (i)  the other person did not act in good faith in entering into the transaction that created the terminated obligation; or

                             (ii)  when the transaction that created the terminated obligation was entered into, the other person had reasonable grounds for suspecting that the party was insolvent at that time or would become insolvent because of, or because of matters including:

                                        (A)  entering into the transaction; or

                                        (B)  a person doing an act, or making an omission, for the purposes of giving effect to the transaction; or

                            (iii)  the other person neither provided valuable consideration under, nor changed their position in reliance on, the transaction.