Liechtenstein aims to clarify the legal position of non-EEA counterparties in title transfer collateral arrangements
The validity and enforceability of collateral arrangements under Liechtenstein law relies, to a large extent, on Arts. 392 et seqq. SR, transposing the FCA Directive. The scope of Arts. 392 et seqq. SR is not autonomously defined. Instead Art. 392 para. 1 SR refers to the FCA Directive in this regard, which defines covered counterparties by categories, inter alia under reference to their regulatory status under European financial regulation. In addition, Art. 392 para. 1a SR stipulates that Swiss Counterparties are treated as equal to EEA Counterparties. This additional clarification suggests a narrow interpretation of the scope, as pursuant to an argumentum e contrario, without such clarification Swiss counterparties (being non-EEA firms) seem not be covered and their arrangements and transactions not protected under Arts. 392 et seqq. SR. As a consequence, and owing to a lack of case-law in this regard, there is a risk that a court would not recognise a full title transfer in the event of the bankruptcy of a Liechtenstein entity, but re-characterise such a transfer as a security interest. The associated legal uncertainty has been a concern for non-EEA counterparties, who engage in OTC derivatives trading with Liechtenstein market participants.
In light of the importance of the availability of a clean legal opinion with respect to the enforceability of title transfer collateral arrangements for the participation of Liechtenstein banks in international OTC derivatives trading and in order to create legal certainty in this respect, the legislator now seeks to clarify and amend the scope of application of Arts. 392 et seqq. SR in the course of the upcoming revision of the Liechtenstein insolvency law. The government has proposed introducing a clarification to explicitly extend the scope of Arts. 392 et seqq. SR to non-EEA counterparties with the effect that non-EEA collateral providers and collateral takers will be treated equally to EEA collateral providers and collateral takers.
The legislative process is still ongoing. After the first reading on 5 June 2020, a second reading is expected in October 2020. Subject to delays in the legislative process, the revised insolvency law (as well as the clarification with respect to the SR) is expected to come into force on 1 January 2021 and shall be applicable to insolvency proceedings opened after 31 December 2020.
The revision of the Liechtenstein insolvency regime will bring about modernisation and substantive changes to the current legal landscape. We are happy to support our clients in this transition.
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