Lehman Limits Exercise Of Setoff Right In ISDA Pacts

Law360, New York (May 20, 2010, 2:03 PM EDT) -- On May 5, 2010, the United States Bankruptcy Court for the Southern District of New York issued a decision holding that the contractual right of setoff under an ISDA Master Agreement is unenforceable in bankruptcy unless strict mutuality exists.

The background to the decision is that before Lehman's bankruptcy, Swedbank AG ("Swedbank") and Lehman Brothers Holdings Inc. ("LBHI") entered into several ISDA Master Agreements (the "Agreements").

Each of the Agreements provides that bankruptcy is an event of default triggering the early termination of the Agreements. Early...
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