World Bank Insolvency and Creditor/Debtor Regimes Principles
The treatment of financial contracts in insolvency
Working Group meeting, World Bank Offices, Vienna, 17 December 2014
Meeting notes
1. A working group (see list of participants below) was convened on 17 December 2014 at the
World Bank office in Vienna, to discuss the World Bank principle regarding the treatment of
financial contracts in insolvency, pursuant to the decision of the Insolvency and Creditor/Debtor
Regime (ICR) Task Force in its meeting of 24 October 2014 (held at the World Bank HQ,
Washington DC).
2. Experts circulated a preliminary draft for discussion by the working group. World Bank staff
clarified that the draft was circulated by the experts on behalf of the Task Force to facilitate and
focus the discussion of the relevant Principle; as such, the discussion draft does not purport to
represent the views of the World Bank or other institutions with which the participants might be
associated.
3. The discussions of the working group reconfirmed the conclusions at the Task Force that the
existing provision in the World Bank ICR Principles relating to financial contracts (Principle
C.10.4) did not reflect the current international guidance on the topic, and appeared
inconsistent with emerging law.
4. Specifically, the working group recognized that (i) the purpose of the Principle was to set out in
general terms such guidance that would allow assessors to determine whether the particular
legal system being assessed had provisions on the treatment for financial contracts that fell
within the scope of relevant international guidance on the subject; (ii) as such, the Principles
cannot be prescriptive and must allow for the range of legislative and policy discretion
recognized by the evolving international guidance on this matter; (iii) international norms
instantiating current best practice as to the treatment of financial contracts derive from the
European Union Bank Recovery and Resolution Directive; the European Union Directive on
Financial Collateral Arrangements as revised; FSB Key Attributes of Effective Resolution Regimes
for Financial Institutions; and the UNIDROIT Principles on the Operation of Close-out Netting
Provisions.
5. The working group recognized that legal certainty and enforceability of contracts in accordance
with their terms is critical to economic activity. At the same time, it was acknowledged that
certainty alone cannot be a justification for immunizing certain types of contracts from the
application of fundamental principles of insolvency law. The current international norms seek to
offer a framework for providing legal certainty while recognizing the need for collective action
mechanisms to allow for orderly enforcement and to ensure financial market stability.
6. Extant and emergent international norms increasingly recognize the possibility of a limited stay
on early termination rights in financial contracts. They also make distinctions between different
types of financial contracts for the purpose of recognizing immunities from the application of
fundamental insolvency law principles. For example, relevant international instruments permit
exemptions from immunities of financial contracts to which one or more of the parties is neither
a financial market participant nor a public authority.
7. The view of the working group was that the Principle should be revised to enable assessors to
recognize as being in compliance with best practice standards jurisdictions that are within the
scope of the permitted approaches under the EU Directives, the Key Attributes and the
UNIDROIT Principles. To that end, the view of the group was that the Principle should be
revised: (i) to allow for the possibility of a limited stay on early termination rights, consistent
with current international norms and subject to safeguards; (ii) to recognize provisions
immunizing financial contracts where at least one of the parties is a financial institution; and (iii)
to allow for the legislative discretion acknowledged in the current norms in dealing with
financial contracts for example where one of the parties is neither a financial market participant
nor a public authority. The Principle should ensure that countries are not penalized if in
accordance with international norms they clearly define in their laws the type of financial
contracts that require ‘safe harboring’, i.e. those contracts where delay of termination and
netting would create risks to financial market stability. The Principle should be drafted with
sufficient flexibility to accommodate different approaches of legal systems that are in
compliance with emerging norms.
8. It was decided that the Principle will be redrafted by experts in accordance with the discussion
above and will be circulated to the working group for additional comments before a draft is
finalized for circulation to the Task Force for further deliberations.
Annex
Working Group
Convenors
1. Vijay Tata (World Bank)
2. Irit Mevorach (World Bank)
Participants
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Peter Werner (ISDA)
Ed Murray (Allen & Overy LLP/ ISDA)
Monica Marcucci (Central Bank of Italy)
Teresa Muñoz (Central Bank of Mexico)
Dean Beale (Insolvency Service, UK)
Rodrigo Rodriguez (Federal Office of Justice and University of Bern, Switzerland)
Mark Smith (Department for Business, Innovation & Skills, UK)
Marc Lienau (Ministry of Justice, Germany)
Min Han (Ewha Womans University Law School, Republic of Korea)
Lewis Kruger (Stroock, USA)
Riz Mokal (UCL, UK)
Robin Phellan (Haynesboone, USA)
Edward Janger (Brooklyn Law School, USA)
Chris Redmond (Huschblackwell, USA)
Neil Cooper (Zolfo Cooper, UK)
Janis Sarra (University of British Columbia, Canada)