President His Highness Shaikh Khalifa Bin Zayed Al Nahyan Image Credit: WAM

Abu Dhabi: President His Highness Shaikh Khalifa Bin Zayed Al Nahyan has issued Federal Decretal Law No.10 of 2018 on Netting,

Netting entails offsetting the value of multiple positions or payments due to be exchanged, between two or more parties. It can be used to determine which party is owed remuneration in a multiparty agreement.

The provisions will apply to all qualified financial contracts, netting agreements specified under this law or collateral arrangement.

This decretal law does not apply to financial free zones and financial institutions licensed thereby to the extent where there are similar legislations governing similar cases referred to in this law. The promulgation of this law is also aimed at strengthening the legislative framework for the settlement of obligations arising from qualified financial contracts through set-off, offset, or net out obligations.

“The new law shall lead to reduction in credit and settlement risks and increases the effectiveness of its regulatory procedures, inclusive of safeguards related to netting. This in turn shall strengthen oversight and governance frameworks, improve the performance of the national economy and attract more foreign investment for the state,” said Shaikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance.

Netting shall include cases of termination, liquidation and/or acceleration of any payment, obligation to deliver entitlement or obligation to make, receive or require payments or deliveries, under a Qualified Financial Contract entered into under a Netting Agreement or to which a Netting Agreement applies.

The law provides that during insolvency and bankruptcy proceedings relating to a party to a Netting Agreement, the obligations of any party to make payments or deliveries, which pursuant to that agreement are converted into net claims or obligations or otherwise netted shall take effect, in accordance with the terms of the applicable Netting Agreement. The same applies to Qualified Financial Contracts and to financial contracts and transactions to which such Netting Agreement applies.

The provisions of a Netting Agreement, which provide for the determination of a net balance of the close-out values, shall also be enforced in respect of an insolvent and any other party in accordance with its terms. The same shall apply in respect of market values, liquidation values and replacement values calculated in respect of accelerated and/or terminated payment or delivery obligations or entitlements under one or more Qualified Financial Contract entered into under or in connection with a Netting Agreement.

The provisions of a Netting Agreement shall not be suspended, resolved, made conditional or not performed in any manner based on the provisions of the Insolvency and Bankruptcy laws in force, which limit the exercise of rights to set-off, offset or net out obligations, entitlements, payment amounts or termination values owed between an Insolvent and another party.