re: Ann: Status of Norton Gold Hedge with Leh... The Enron...

re: Ann: Status of Norton Gold Hedge with Leh... The Enron Australia case was based on the 1992 ISDA Master Agreement, whereas the NGF-LBCC contract was based on the 2002 ISDA Master Agreement. Here's what Allens Arthur Robinson had to say about that:-

ISDA released a new version of the ISDA Master Agreement in 2002. That removes the ability of the parties to choose First Method – all close-out payments are calculated on an equivalent basis of the Second Method. However, the flawed asset provision of Section 2(a)(iii) remains almost unchanged. Accordingly, the same issues that have arisen in Enron Australia v TXU Electricity would have arisen had the parties documented their ISDA Agreement under the 2002 ISDA Master Agreement as opposed to the 1992 ISDA Master Agreement.

The clear implication of this case is that under an ISDA Master Agreement no other right exists for an insolvent counterparty to recover the amounts in these or comparable circumstances. To find such right a court would have to vary the contract, as in this case the court said it would not do, and notwithstanding the Additional Termination Event.

One may speculate as to the consequences for large insolvent entities, including pension or similar funds, with substantial 'in-the-money' transactions which they were not able to realise.

No obvious argument presents itself as to how such a result, pursuant to arguments not involving insolvency disclaimer of contracts, as already rejected in the case, would be avoided.

http://www.allens.com.au/pubs/baf/fobaffeb04.htm

Of course, both of these articles are based on a case in an Australian jurisdiction. Apparently, there are provisions of the US bankruptcy law which might be relevant to the NGF matter. However, no doubt NGF is hoping for a result similar to the Enron one. I'm still looking for any US cases on the matter.