Set Off And Netting Case Study

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Introduction
International financial transactions take place between varieties of jurisdictions which may belong to any of the existing legal families. Each legal family emerging in their own ways, with their respective philosophies are bound to have differences. For the purpose of this essay we shall look at whether in the current legal environment, in the context of set-off and netting do these differences matter or not and in case of any differences, if they are only based on terminology.
To begin it is of use to identify main legal families. They include Anglo-American group, Roman-Germanic group, Napoleonic group, mixed civil law/common law group, Islamic group and new jurisdictions. Amongst these, most of the jurisdictions recognize …show more content…

Examples may include simple liquidated debts, damages for non-performance of a contract, claims for differences under contracts held by both parties etc.
Netting
Netting has various types which need to be distinguished. Most common being close-out netting which is regarded as ‘cancellation of a series of open executory contracts between parties on the default of the counterparty and set-off of the resulting gains and losses’ . It is usually done in three steps, cancellation, calculation and setting off. Another type is settlement netting that is an advance set-off of the obligations under contracts which are yet not due. ‘This type of netting is a classical case of novation.’
Legal Position of Set-off and Netting
The position of law in jurisdictions with regards to these concepts is dependent on the timing of when these concepts need to be utilized. This timing can be broadly divided into the category of before insolvency and after insolvency proceedings have been initiated. Having set-off available before a party becomes insolvent is not an issue as the law does not have to deal with the insolvent owing money to third parties. Therefore, the main difference that arises in law in different jurisdictions is based on insolvency

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