ENFORCEABILITY OF NETTING AGREEMENTS UNDER CAMA 2020
Netting agreement under the Act is defined to mean any –
a. 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 under the agreements by the parties to the agreement (a “master netting agreement”);
b. Master agreement between two parties that provides for netting of the amounts due under two or more master netting agreements (a “master-master netting agreement”); and
c. Collateral arrangement related to or forming part of one or more of the foregoing.
From the foregoing provision, one of the essential requirements for the enforcement of netting arrangement under the Act is that the transaction in question is a qualified financial contract falling under the purview of the Act. According to the Act, a “qualified financial contract” is any type of financial transaction, including futures, forwards, options, swaps, collateral arrangements, and others, for which payment or delivery obligations must be fulfilled at or before a specific date, as well as any additional deal, contract, or transaction that is designated as such by a financial regulatory body.
In addition, the act covers any other type of financial contract that may be created in the future by financial regulatory bodies like the Securities Exchange Commission, the National Insurance Commission, the Central Bank of Nigeria, and other regulators of the financial services industry. It also accommodates other types of financial derivative contracts that are not listed in the Act.
Also, with regard to the enforcement of netting agreements, the Act broadens the definition of a person and a party to include natural, corporate, and statutory bodies, foreign entities, and other entities. This means that non-enforcement of netting agreement cannot be justified by a party’s organization under a different law than Nigerian law, as the definition includes foreign entities and international organizations.
Another essential requirement is that the parties’ agreement, as indicated by the Qualified Financial Contract, be a netting agreement with “netting” consequences for the required acts.
It is important to note that the Act prioritizes netting provisions in qualified financial contracts over any actions taken by a liquidator, bankruptcy, re-organization, composition with creditors, receivership, or other insolvency proceedings that may seek to preclude their enforcement.
However, this principle, may not be used by a liquidator in the event that there is substantial proof that the non-insolvent party made the transfer or assumed the obligation with the genuine intention of impeding, delaying, or deceiving any organization to whom the bankrupt party owed money, either before or after the date the transfer was made or the obligation was incurred.