Avoidance of pre-liquidation transfers

(1) The liquidator may declare void a transaction based on a forged or fraudulent document that the licensee has executed to the detriment of creditors within five years prior to the effective date of the liquidation. (2) The liquidator may declare void the following transactions affecting the assets of the licensee or to recover from third parties the transfers by the licensee– (a) gratuitous transfers to, or to persons related to, and and principal shareholders of or holders of significant interests in the licensee made within five years prior to the effective date of the liquidation; (b) gratuitous transfers to third parties made within three years prior to the effective date of the liquidation; (c) transactions in which the consideration given by the licensee considerably exceeded the received consideration, made within three years prior to the effective date of the (d) any act done with the intention of all parties involved to withhold assets from the licensee’s creditors, or otherwise impair their rights, within five years prior to the effective date of the liquidation; and 183 (e) transfers of property of the licensee to, or for the benefit of, a creditor on account of a debt incurred within six months prior to the effective date of the liquidation which has the effect of increasing the amount that the creditor would receive in a liquidation of the licensee; provided however that payment of deposits in an amount equal to or less than two thousand dollars per depositor shall not be subject to this provision. (3) Transactions with persons related to the licensee conducted within one year prior to the effective date of the liquidation, if detrimental to the interest of depositors and other creditors, may be declared void by the liquidator and recovered from such persons. (4) An action to declare a transfer void may be brought by the liquidator within one year following the effective date of the (5) Notwithstanding the foregoing sub-sections, the liquidator may not declare void a payment or transfer by the licensee if it was made in the ordinary course of the licensee’s business, or if it was part of a contemporaneous exchange for reasonably equivalent value, or to the extent that following the transfer the recipient extended new unsecured credit to the licensee which had not been satisfied by the licensee as of the effective date of the liquidation. (6) The liquidator may recover property or the value of property transferred by the licensee from a transferee of an initial transferee only if the second transferee did not give fair value for the property and knew or reasonably should have known that the initial transfer could be set aside. 184 (7) The liquidator may order that notice of the filing of an action to declare void a transfer is to be recorded in the public records for real estate ownership and any other rights in property and a person taking title to or acquiring any security interest or other interest in such property after the filing of such a notice takes his or her title or interest subject to the rights of the licensee to recover the property. (8) A lessor of the licensee’s premises or a utility company or other provider of utility services including, without limitation, a company that supplies electricity, natural gas, water or telephone services, may not alter, refuse or discontinue such services to a licensee because of its liquidation or because the licensee has failed to pay for services prior to its liquidation; provided however that upon request of a lessor of the licensee’s premises or a utility company, the licensee shall place a security deposit in a commercial bank as a condition to the lessor’s or utility company’s duty to continue to provide services during the liquidation, and any such deposit shall not be required in an amount greater than the cost of services provided to the licensee during the month immediately prior to the effective date of the (9) Notwithstanding sub-section (1)– (a) irrevocable money and securities transfer orders entered by a licensee into a payment or securities settlement system recognized as such by the Central Bank shall be legally enforceable and binding on third parties, even upon a decision revoking the licensee’s license and appointing a liquidator, but only if the transfer orders become irrevocable before such decision takes effect; or (b) where a licensee enters irrevocable money or securities transfer orders into a payment or 185 securities settlement system after the decision revoking the licensee’s license and appointing a liquidator takes effect and the transfer orders are carried out on the day of such decision, the transfer orders shall be legally enforceable and binding on third parties, unless the liquidator proves that the system operator was aware of the decision before the transfer orders became irrevocable. (10) No law, regulation or practice on the setting aside of contracts and transactions issued or adopted before the decision revoking the licensee’s license and appointing a liquidator takes effect shall lead to the unwinding of a netting by a payment or securities settlement system recognized as such by the Central Bank because of that decision. (11) For the purposes of sub-sections (9) and (10)– (a) a transfer order entered into a money or securities settlement becomes irrevocable at the time defined by the regulations of that system; and (b) “netting” means the conversion into one net claim or one net obligation of claims and obligations resulting from transfer orders which a participant or participants in a settlement system either issue to, or receive from, one or more other participants in that system with the result that only a net claim or a net obligation remains. (12) Nothing in this Act and no decision made under this Act shall prevent or prohibit the set off by operation of law of obligations between a licensee being subject to the liquidation proceedings under this Act and its counterparties. 186 (13) In determining the rights and obligations between the licensee and its contractual counterparties, effect shall be given to the termination provisions of eligible financial contracts between them. The net termination value determined in accordance with an eligible financial contract between them shall be a claim of the licensee on the counterparty or shall be admitted after its validation as a claim of the counterparty on the licensee. For the purposes of this paragraph– (a) “eligible financial contract” means any of the following agreements: (i) a currency or interest rate swap agreement; (ii) a basis swap agreement; (iii) a spot, future, forward or other foreign exchange agreement; (iv) an agreement providing for a cap, collar or floor transaction; (v) a commodity swap agreement; (vi) a forward rate agreement; (vii) a repurchase or reverse repurchase agreement; (viii) a spot, future, forward or other commodity agreement; (ix) an agreement to buy, sell, borrow or lend securities, to clear or settle securities transactions or to act as a depository for securities; 187 (x) any derivative, combination or option in respect of, or agreement similar to, an agreement referred to in sub- paragraphs (i) through (ix); (xi) any master agreement in respect to an agreement referred to in sub- paragraphs (i) through (x); (xii) any master agreement in respect of a master agreement referred to in sub- paragraph (xi); (xiii) a guarantee of the liabilities under an agreement referred to in sub- paragraphs (xii); and (xiv) any agreement of a kind prescribed by regulation or guideline made pursuant to this Act; and (b) “net termination value” means the net amount obtained after setting off the mutual obligations between the parties to an eligible financial contract in accordance with its (14) Except as provided under this sub-section and subject to sub-section (15), no set-off shall be allowed with respect to claims acquired towards the licensee after the decision on the revocation of the license and the appointment of a liquidator takes effect or within three months before such decision. (15) Claims towards the licensee arising from deposits shall be set-off against any sum due by a depositor to the licensee as of the date on which the license is revoked and the liquidator is appointed188 (a) automatically if such sum is matured or past due; (b) at the option of the depositor, if the sum is not matured or past due.