Ann: Status of Norton Gold Hedge with Lehman Brot, page-12

re: Ann: Status of Norton Gold Hedge with Leh... Thanks guys,

Having looked for an opinion from a US lawyer on the subject, I found this article:-
http://jweinsteinlaw.com/pdfs/Futures-1104.pdf

What's interesting is that they tend to agree that a US bankruptcy court would probably take a similar view to the Australian court. What they seem to raise as issues are:-

1. Whether US bankruptcy laws would allow the contract to be transferred to a 3rd party. The article doesn't express a strong opinion on this, although it seems to suggest that a US court might have the power to do this (although they would need to override the contractual terms to do so).

2. The most interesting aspect is whether transferring the hedge to a 3rd party would actually do anything. The article indicates that it would be very arguable that all of these rights to suspend payment and so on, would not necessarily cease merely because LBCC on-sold their hedge. The article implies that the standard ISDA Master Agreement says that obligations will be suspended if the counter-party goes bust. The article makes the point that this suspension specifies the original counter-party and that, even if the court allowed the hedge to be transferred against the wishes of NGF, the court would need to modify a second part of the contract - the section which says that obligations will be suspended when the original party is in bankruptcy. So, the court would need to say: it doesn't matter that the contract says you need NGF's approval to transfer the contract - you don't; and it doesn't matter that the contract says you can suspend payments until LBCC gets out of bankruptcy, they've sold that agreement (against NGF's will) - you have to pay this new party, regardless.

That's a big call, IMO. The court would essentially be ignoring big slabs of the agreement.