Anguilla: Anguilla Enacts Netting Legislation

The Netting Act, 2006 came into force on October 19, 2006 and now provides certainty for those seeking to net against Anguillan counterparties. The interaction of company and bankruptcy law had previously meant that the basis for netting in Anguilla was uncertain and this was proving increasingly problematic for, amongst others prime brokers dealing with Anguillan hedge funds. The Netting Act is based on the International Swaps and Derivatives Association’s Model and was introduced after consultation with ISDA.

Netting concerns the ability of parties to set off reciprocal claims or obligations in an insolvency. A creditor is therefore able to improve his position by setting off any sums owed to him by the insolvent debtor. The creditor effectively receives these sums before preferential creditors and need only claim with the other unsecured creditors for a lesser amount.

Under the Netting Act, provisions of a netting agreement are expressly made enforceable in accordance with their terms against an insolvent party (or a person providing security for the insolvent party) and will not be stayed, avoided or otherwise limited by any action of a liquidator or any insolvency law.

A netting agreement is defined as being (a) any agreement between two parties that provides for netting of present or future payment or delivery obligations or entitlements arising under or in connection with one or more qualified financial contracts entered into by the parties to the agreement, (b) any master agreement between two parties for netting of the amounts due under two or more master netting agreements or (c) any collateral agreement referred to in paragraph (a) or (b). The definition of netting agreements expressly includes multibranch netting agreements. Therefore a netting agreement which provides for netting of amounts under qualified financial contracts between an Anguillan counterparty and several different branches of a bank is therefore likely to be enforceable through insolvency.

Qualified financial contracts are financial contracts pursuant to which payments or delivery obligations that have a market or an exchange price are due to be performed at a certain time or within a certain period of time and expressly include futures, options, swaps and a variety of other similar transactions.