Common use of Margining Clause in Contracts

Margining. The second aspect of the special insolvency treatment relates to Article 8 of the Financial Collateral Directive and in particular the issue of margin. Under traditional insolvency principles, the insolvency court has the power to prevent collateral/margin transfers that occurred shortly prior to insolvency. According to ▇▇▇▇▇▇▇ ▇▇▇▇▇, this is generally within three months of insolvency, but the precise time horizon does depend on applicable national bankruptcy laws.124 The reason is that such transfers are regarded as giving preferential treatment 120 European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive 2014/59/EU on loss-absorbing and recapitalisation capacity of credit institutions and investment firms and amending Directive 98/26/EC, Directive 2002/47/EC, Directive 2012/30/EU, Directive 2011/35/EU, Directive 2005/56/EC, Directive 2004/25/EC and Directive 2007/36/EC (23 November 2016) 1 at 4. 121 Moratorium powers only apply to parties within the scope of the BRRD, it does not apply to every collateral transaction as certain parties are not within the scope of the BRRD. 122 ISDA (n 97). See also, Paech (n 30) 1 at 36-39; European Commission (n 97); ▇▇▇▇▇▇ (n 78) 149. 123 ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ (n 96) 1 at 8. See also, European Banking Federation, “Solvent Wind- down of Derivatives and Trading Portfolios” (26 July, 2019) 1 at 4, available at: https:// ▇▇▇.▇▇▇.▇▇▇/▇▇-▇▇▇▇▇▇▇/▇▇▇▇▇▇▇/▇▇▇-▇.▇▇▇. 124 Paech (n 30) 1 at 9. to the relevant collateral taker vis-à-vis the other creditors of the insolvent estate. However, for the reasons discussed above, under section 3.4.2 ‘Special insolvency treatment’, “certain insolvency provisions are disapplied”.125 Speci- fically, the special insolvency treatment extends to collateral/margin being provided shortly before insolvency as enforced in Article 8 of the Financial Collateral Directive. According to the wording of the Financial Collateral Directive under Article 8 (3) (a) and (b), where there is: (a) an obligation to provide financial collateral or additional financial collateral in order to take account of changes in the value of the financial collateral or in the amount of the relevant financial obligations, or (b) a right to withdraw financial collateral on providing, by way of substitution or exchange, financial collateral of substantially the same value, Member States shall ensure that the provision of financial collateral, additional financial collateral or substitute or replacement financial collateral… shall not be treated as invalid or reversed or declared void”.126