IBANK 10.2.8 Criteria for true sale

(1) For asset-backed sukuk, ownership of the underlying assets must be transferred to the sukuk holders (or to an SPE for their benefit) by a true sale under Shari'a.
(2) The 4 main criteria for a true sale are:
(a) the transfer must be such that:
(i) it cannot be re-characterised by a court or other body as a secured loan; or
(ii) it cannot be avoided in a bankruptcy or insolvency proceeding involving the originator of the assets;

Example

The sale should not be a fraudulent transfer in anticipation of bankruptcy or a preference payment
(b) the bankruptcy or insolvency of the originator must not affect the assets transferred and the issuer of the sukuk must be able to enforce collection and other rights against the source of the income without any hindrance resulting from the bankruptcy or insolvency of the originator;
(c) the transfer must be perfectible at the election of the issuer; and
(d) the sale must be free and clear of all prior overriding liens.
(3) The transfer of assets must be evidenced by a written contract for their sale to the sukuk holders.

Note For the covenants and declarations that must be included in the transaction documents, see rule 10.2.27.
Inserted by QFCRA RM/2017-1 (as from 1st April 2017).