SET-OFF AND NETTING ON INSOLVENCY ACT

SET-OFF AND NETTING ON INSOLVENCY

CHAPTER 459

SET-OFF AND NETTING ON INSOLVENCY ACT

To make provision for the enforceability of set-off and netting on

bankruptcy or insolvency.

7th April, 2003

1st June, 2003

ACT IV of 2003 , as amended by Act I of 2004 .

The short title of this Act is the Set-off and Netting on

Insolvency Act.

In this Act, unless the context otherwise requires -

''close-out netting provision'' means a provision of a contract

under which on the occurrence of a specified event, whether

through the operation of netting or set-off or otherwise -

(a) the benefit of time for the performance of relevant

obligations by the debtor may no longer be claimed

and, or the relevant obligations become immediately

due and expressed as an obligation to pay an amount

representing their estimated current value, or are

terminated and replaced by an obligation to pay such

an amount, and, or,

(b) any obligation of a party to deliver property to the

other is immediately performable notwithstanding any

benefit of time granted to the debtor and expressed as

an obligation to pay an amount representing its

estimated current value or replacement value or is

terminated and replaced by an obligation to pay such

an amount, and

(c) an account is taken of what is due from each party to

the other in respect of such obligations and those

obligations fall to be discharged by the payment of an

aggregate net sum equal to the balance of account by

the party from whom the larger amount is due;

''netting'' means the conversion into one net claim or one net

obligation of claims and obligations arising under any contract with

the result that only a net claim can be demanded or a net obligation

(1) Notwithstanding the provisions of any other law, any

close-out netting provision or any other provision in any contract

providing for or relating to the set-off or netting of sums due from

each party to the other in respect of mutual credits, mutual debts or

other mutual dealings shall be enforceable in accordance with its

terms, whether before or after bankruptcy or insolvency, in respect

of mutual debts, mutual credits or mutual dealings which have

arisen or occurred before the bankruptcy or insolvency of one of

the parties, against

SET-OFF AND NETTING ON INSOLVENCY

(a) the parties to the contract,

(b) any guarantor or any person providing security for any

party to the contract,

(c) the liquidator, receiver, curator, controller, special

controller or other similar officer of either party to the

contract, and

(d) the creditors of the parties to the contract.

(2) When a close-out netting provision is enforced, obligations

expressed in different currencies are converted into a single

currency and such obligations shall be discharged by the payment

of an aggregate net sum equal to the balance of account by the party

from whom the larger amount is due.

(3) Any authority or mandate in a contract to implement any

close-out netting provision shall not be revoked by the declaration

of bankruptcy or the insolvency of any other party to the contract.

(4) Subarticle (1) shall not apply in respect of any close-out

netting agreement entered into at a time at which the other party

knew or ought to have known that an application for the dissolution

and winding up of the company by reason of insolvency was

pending, or that the company has taken formal steps under any

applicable law to bring about its dissolution and winding up by

reason of insolvency.

(5) Subarticle (1) shall also not apply where the insolvent party

is an individual or a commercial partnership other than a company

and the other party knew or ought to have known of events of the

same nature as stated in the preceding subarticle in relation to the

insolvent party.

(6) Notwithstanding the provisions of any other law, nothing

shall limit or delay the application of any provision of any contract

providing for or relating to set-off or netting which would

otherwise be enforceable and no order of any court nor any warrant

or injunction or similar order issued by a court or otherwise and no

proceedings of whatever nature shall have any effect in relation

thereto.

(7)

Nothing in subarticle (6) shall -

(a) prevent the application of any law which would render

netting or set-off unenforceable in any particular case

on the grounds of fraud or on any similar ground, or

(b) permit the enforceability of netting or set-off under

this article if any provision of a contract between the

parties concerned would make netting or set-off void

because of fraud or any similar ground.

(8) Articles 303, 304 and 315 of the Companies Act and article

485 of the Commercial Code shall only be applicable in relation to

a close-out netting provision where there is fraud on the part of the

party to the agreement not being the insolvent party.

SET-OFF AND NETTING ON INSOLVENCY

It shall be lawful for the parties to a contract, when

entering into the contract -

(a) to agree on any system or mechanism which will

enable the parties to convert a non-financial obligation

into a monetary obligation of equivalent value and to

value such obligation for the purposes of any set-off or

netting;

(b) to agree on the rate of exchange or the method to be

used to establish the rate of exchange to be applied in

effecting any set-off or netting when the sums to be set

off or netted are in different currencies, and to

establish the currency in which payment of the net sum

is to be effected;

(c) to agree that any transactions or other dealings carried

out pursuant to any contract, whether identified

specifically or by reference to a type or class of

transactions or dealings, shall be treated as a single

transaction or dealing for the purpose of the set-off or

netting provisions in the contract and that all such

transactions or dealings shall be treated as a single

transaction or dealing by the parties or any liquidator,

receiver, curator, controller or special controller or

other officer acting for the parties and any court.

A close-out netting provision entered into by a party which

is a branch in Malta of an oversea company shall be valid and

enforceable in accordance with the provisions of this Act

notwithstanding the provisions of any other law which may be

applicable to such party, including the law under which such

company is constituted.

An assignment of a debt or an action forming a part of an

agreement containing a close-out netting provision shall not be

subject to the provisions of article 2013(3) of the Civil Code.

(1) The Minister may make regulations to give effect to the

provisions of this Act and, without prejudice to the generality of

the foregoing, may in particular make regulations to transpose and

implement any Directive of the European Parliament and of the

Council on financial collateral arrangements; and, in particular,

regulations relating to any aspect concerning financial collateral

agreements and similar arrangements; such regulations may define

financial collateral, may provide for the rights and obligations of

the collateral taker and the collateral provider, establish formal

requirements and rules on the enforcement of financial collateral

agreements and similar arrangements, the recognition of title and

the non-applicability of certain rules of the Civil Code and of legal

provisions relating to bankruptcy and insolvency, and such

regulations may also provide for relative rules on conflict of laws

and for any other matters as are incidental or connected thereto.

(2) Regulations made under this article may be made and

published in the English language only.

SET-OFF AND NETTING ON INSOLVENCY