Uganda Makes Rules On Enforceable Netting

• Law Firm: ENSafrica
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Contracts and Commercial Law
• Author: Mr Phillip Karugaba and Rehema Nakirya Ssemyalo
• Published date: 26 May 2023

Uganda has published rules to secure the enforceability of close-out netting under ISDA Master Agreement, GMRA and GMSLA contracts with financial institutions. The Financial Institutions (Preference and Appraised Book Value) Regulations 2023 (the "Regulations") were published on 14 April 2023.

The new Regulations are made under the Financial Institutions Act (the "Act") and apply to transactions under the ISDA Master Agreement (including its credit support documents), the GMRA and GMSLA (defined as specified financial contracts) entered into with financial institutions.

The Regulations address the existing challenge of the enforceability of the close-out netting provisions under the specified financial contracts in the event of the insolvency of a financial institution counterparty. If a financial institution is taken over or it gets closed down by the Bank of Uganda ("BoU"), the Act states any transfer of assets made within six months of the take over or closure will not be allowed if the transfer was done to show a preference or if the assets were sold at less than their appraised book value. The transfer will be considered invalid. This created undue uncertainty within the market concerning the enforceability of transactions conducted under these global standard-specified financial contracts including close-out netting against a financial institution.

The new Regulations clarify that the transfer of any asset (including the exchange of variation margin or collateral) by a financial institution under a specified financial contract, is deemed not...