14Effectiveness of close‑out netting contracts

14 Effectiveness of close‑out netting contracts

(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; (ca) security given over financial property, in respect of obligations of a party to the contract, may be enforced in accordance with the terms of the security, provided the terms of the security are evidenced in writing (but see section 14A); (d) paragraphs (c) and (ca) apply 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 financial property mentioned in paragraph (ca); or (iii) the operation of any encumbrance, or any other interest, in relation to those rights or that financial property that is created after the commencement of this section; in contravention of a prohibition in the contract, or in the security mentioned in paragraph (ca); (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; (fa) security given over financial property, in respect of obligations of a party to the contract, may be enforced in accordance with the terms of the security, provided the terms of the security are evidenced in writing (but see section 14A); (fb) if: (i) under section 267 or 267A of the Personal Property Securities Act 2009 or section 588FL of the Corporations Act 2001, a security interest would, but for this paragraph, vest in the grantor before the external administration begins; and (ii) where the security interest did not vest under one of those sections before the external administration begins, the security would be enforceable under paragraph (fa); the security interest does not vest under that section before the external administration begins; (g) none of the following is to be void or voidable in the external administration: (i) the netting or termination of obligations under the contract; (ii) a payment by the party to discharge a net obligation under the contract; (iii) the enforcement of security under paragraph (fa); (h) paragraphs (c) to (g) apply 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 financial property mentioned in paragraph (fa); or (iii) the operation of any encumbrance, or any other interest, in relation to those rights or that financial property; in contravention of a prohibition in the contract, or in the security mentioned in paragraph (fa).