Netting - British Virgin Islands

Netting

The Insolvency Act, 2003 of the British Virgin Islands (the

"IA") provides that netting provisions

in financial contracts are exempted from the insolvency provisions

of the IA. Significantly this includes voidable transactions. Even

where an insolvent entity that is party to a financial contract

goes into liquidation, this exemption will preserve the sanctity of

the netting provisions contained in the relevant agreement(s).

A point of note is that this exemption is confined to financial

contracts between two parties and does not include multi-party

arrangements. As such, it is critical that netting arrangements are

structured as bilateral contracts as opposed to multilateral

contracts. Financial contracts are contracts pursuant to which

payment or delivery obligations that have a market or an exchange

price are due to be performed at or within a certain period of

time.

Insolvency set-off

Section 150 of the IA provides that where, before the

liquidation of a company, there have been mutual credits, mutual

debts or other mutual dealings between a debtor and a creditor is

claiming or intending to claim in the insolvency proceeding, only

the balance of the account, if any, may be claimed in the

insolvency proceeding or is payable to the debtor, as the case may

be.

The IA also states that a creditor is not entitled to claim the

benefit of a set-off if it had actual notice that the debtor was

insolvent:

at the time it gave credit to the debtor or received credit

from the debtor; or

at the time he acquired any claim against the debtor or any

part of or interest in such a claim.

Validity of agreements to subordinate Debt

Where, before the commencement of the liquidation of a company,

a creditor of that company acknowledges or agrees that, in the

event of a shortfall of assets, it will accept a lower...