Entire Act

PART 3: ENFORCEABILITY AND NETTING

7. General rule about enforceability of Netting Agreements

A Netting Agreement is enforceable in accordance with its terms, including against an Insolvent Party, and, if applicable, against a guarantor or other Person (including a guarantor or other Person who is insolvent) providing security for a party to the agreement, and, subject to any conditions of the agreement, is not stayed, avoided or otherwise limited by:

  • (a) the appointment of, or any application for the appointment of, a Liquidator, or any action of a Liquidator; or
  • (b) any provision of law relating to bankruptcy, liquidation (including any compulsory winding up procedure or proceeding), reorganisation, composition with creditors, receivership, conservatorship or any other Insolvency Proceeding to which a party to the agreement may be subject; or
  • (c) any other provision of law that may apply to an Insolvent Party
  • (d) subject to section 16 any provision of law relating to Recovery and Resolution that may apply to a Person.

8. Effectiveness of Netting of obligations to make payments or deliveries

After the commencement of Insolvency Proceedings in relation to a party to a Netting Agreement, any provisions of the agreement under which any obligations of the parties to make, or relating to the making of, payments or deliveries under the agreement or under any Qualified Financial Instrument or contract or transaction to which the agreement applies, are converted into net claims or obligations or otherwise netted (including through entry by the parties into, or the requirement that they enter into, a transaction of the kind mentioned in paragraph (e) of the definition of Netting in Schedule 1) must be given effect to in accordance with their terms.

9. Limitation on Liquidator’s powers

Any power of a Liquidator to assume or repudiate individual Qualified Financial Instruments, contracts, transactions, claims or obligations does not prevent the termination, liquidation, acceleration or conversion into net claims or obligations of all payment or delivery obligations or entitlements, and all obligations or entitlements relating to the making of payments or deliveries, under 1 or more Qualified Financial Instruments entered into under a Netting Agreement or to which a Netting Agreement applies, and the power applies, if at all, only after having given effect to the terms of the Netting Agreement.

10. Limitation of insolvency laws prohibiting set off etc.

The provisions of a Netting Agreement that provide for the determination of, or for payment of or in respect of, the net balance of close-out values, market values, liquidation values, replacement values or other relevant values (including the value of any damages that may arise from a party’s Failure to enter into a transaction required to be entered into under the provisions) calculated in respect of accelerated or terminated payment or delivery obligations or entitlements, or accelerated or terminated obligations or entitlements relating to the making of payments or deliveries, in either case under 1 or more Qualified Financial Instruments entered into under the agreement or to which the agreement applies (including a payment or delivery in respect of a contract or transaction required to be entered into under the provisions) are not be affected by any provisions of insolvency laws that would otherwise limit the exercise of rights to set off, offset or net out obligations, payment amounts or values between an Insolvent Party and a Non-insolvent Party.

11. Preferences and fraudulent transfers

(1) The Liquidator of an Insolvent Party to a Netting Agreement may not avoid or render ineffective any of the following on the ground that it is a preference by the Insolvent Party to any other party:

  • (a) any payment, transfer, delivery, substitution or exchange of Cash, Collateral or any other interests or property under or in connection with the Netting Agreement from the Insolvent Party to the other Party;
  • (b) any obligation incurred under the Netting Agreement, or to which the agreement applies, by the Insolvent Party and owing to the other party to make any payment, transfer, delivery, substitution or exchange of Cash, Collateral or any other interest or property;
  • (c) any transaction entered into by the Insolvent Party in accordance with the terms of the Netting Agreement to give effect to the Netting provided for by the agreement.

(2) However, this section does not prevent a Liquidator of an Insolvent Party from exercising any power to avoid or render ineffective any payment, transfer, delivery, substitution or exchange, or any obligation incurred or transaction entered into, of the kind mentioned in subsection (1)(a) to (c) if there is clear and convincing evidence that the Insolvent Party:

  • (a) made the payment, transfer, delivery, substitution or exchange; or
  • (b) incurred the obligation; or
  • (c) entered into the transaction; with actual intent to hinder, delay or defraud any Person to whom the Insolvent Party was indebted, or became indebted, on or after the day of the transfer, delivery, substitution or exchange was made, the obligation was incurred or the transaction was entered into.

12. Pre-emption

No stay, injunction, avoidance, moratorium, or similar proceeding or order, whether issued or granted by a court, administrative agency, Liquidator or otherwise, may limit or delay application or performance of an otherwise enforceable Netting Agreement or any transaction entered into under the agreement or to which the agreement applies.

13. Realisation and liquidation of Collateral

(1) Unless otherwise agreed by the parties, the realisation, appropriation or liquidation of Collateral under a Collateral Arrangement takes effect or occurs without any requirement that prior notice must be given to, or consent must be received from, any party or other Person.

(2) However, this section does not affect any applicable law that requires the realisation, appropriation or liquidation of Collateral to be conducted in a commercially reasonable way.

14. Scope of these Regulations

(1) A Netting Agreement is a Netting Agreement for these Regulations even though the agreement contains provisions relating to agreements, contracts or transactions that are not a Qualified Financial Instrument.

(2) However, the agreement is a Netting Agreement for these Regulations only in relation to the agreements, contracts or transactions that are Qualified Financial Instruments.

(3) A Collateral Arrangement is a Collateral Arrangement for these Regulations even though the Collateral Arrangement contains provisions relating to agreements, contracts or transactions that are not a Netting Agreement or Qualified Financial Instrument.

(4) However, the Collateral Arrangement is a Collateral Arrangement for these Regulations only in relation to the agreements, contracts or transactions that are a Netting Agreement or Qualified Financial Instruments or that are agreements, contracts or transactions to which a Netting Agreement applies.

(5) For these Regulations, a Netting Agreement and all Qualified Financial Instruments entered into under it, or to which the agreement applies, constitute a single agreement.

15. Enforceability of Qualified Financial Instruments

A Qualified Financial Instrument is not, and must be taken never to have been, void or unenforceable because of being, or having the characteristics of, a wager, a lottery or a gambling or gaming contract.

16. Financial institution in resolution proceedings

In a case where the Insolvent Party is a financial institution subject to the process of Recovery and Resolution, the provisions of these Regulations are without prejudice to the operation of subsection 147(1)(k) and section 156 of the AIFC Financial Services Framework Regulations and subrule 4.2.4(1) of AIFC Recovery and Resolution Rules, subject to the safeguards for Netting Agreements and Collateral Arrangements set out in subrules 4.4.5, 4.6.2 and 4.6.3 of the AIFC Recovery and Resolution Rules and any other relevant provisions of AIFC Regulations and Rules providing safeguards for close-out netting and collateral arrangements in the relevant resolution legislation.