SET-OFF AND NETTING ON INSOLVENCY gCAP. 459.  1
CHAPTER 459
SET-OFF AND NETTING ON INSOLVENCY ACT
To make provision for the enforceability of set-off and netting on
bankruptcy or insolvency and to amend various other financial and
commercial laws.
1st June, 2003
ACT IV of 2003, as amended by Act I of 2004.
Short title.
Insolvency Act.
Interpretation.
''close-out netting provision'' means a provision of a contract
under which on the occurrence of a specified event, whether
through the operation of netting or set-off or otherwise -
(a) the benefit of time for the performance of relevant
obligations by the debtor may no longer be claimed
and, or the relevant obligations become immediately
due and expressed as an obligation to pay an amount
representing their estimated current value, or are
terminated and replaced by an obligation to pay such
an amount, and, or ,
(b) any obligation of a party to deliver property to the
other is immediately performable notwithstanding any
benefit of time granted to the debtor and expressed as
an obligation to pay an amount representing its
estimated current value or replacement value or is
terminated and replaced by an obligation to pay such
an amount, and
(c) an account is taken of what is due from each party to
the other in respect of such obligations and those
obligations fall to be discharged by the payment of an
aggregate net sum equal to the balance of account by
the party from whom the larger amount is due;
''netting'' means the conversion into one net claim or one net
obligation of claims and obligations arising under any contract with
the result that only a net claim can be demanded or a net obligation
be owed.
Set-off and netting.
close-out netting provision or any other provision in any contract
providing for or relating to the set-off or netting of sums due from
each party to the other in respect of mutual credits, mutual debts or
other mutual dealings shall be enforceable in accordance with its
terms, whether before or after bankruptcy or insolvency, in respect
of mutual debts, mutual credits or mutual dealings which have
arisen or occurred before the bankruptcy or insolvency of one of
the parties, against:
(a) the parties to the contract,
2 gCAP. 459. SET-OFF AND NETTING ON INSOLVENCY
(b) any guarantor or any person providing security for any
party to the contract,
(c) the liquidator, receiver, curator, controller, special
controller or other similar officer of either party to the
contract, and
(d) the creditors of the parties to the contract.
(2) When a close-out netting provision is enforced, obligations
expressed in different currencies are converted into a single
currency and such obligations shall be discharged by the payment
of an aggregate net sum equal to the balance of account by the party
from whom the larger amount is due.
(3) Any authority or mandate in a contract to implement any
close-out netting provision shall not be revoked by the declaration
of bankruptcy or the insolvency of any other party to the contract.
(4) Subarticle (1) shall not apply in respect of any close-out
netting agreement entered into at a time at which the other party
knew or ought to have known that an application for the dissolution
and winding up of the company by reason of insolvency was
pending, or that the company has taken formal steps under any
applicable law to bring about its dissolution and winding up by
reason of insolvency.
(5) Subarticle (1) shall also not apply where the insolvent party
is an individual or a commercial partnership other than a company
and the other party knew or ought to have known of events of the
same nature as stated in the preceding subarticle in relation to the
insolvent party.
(6) Notwithstanding the provisions of any other law, nothing
shall limit or delay the application of any provision of any contract
providing for or relating to set-off or netting which would
otherwise be enforceable and no order of any court nor any warrant
or injunction or similar order issued by a court or otherwise and no
proceedings of whatever nature shall have any effect in relation
thereto.
(7) Nothing in subarticle (6) shall -
(a) prevent the application of any law which would render
netting or set-off unenforceable in any particular case
on the grounds of fraud or on any similar ground, or
(b) permit the enforceability of netting or set-off under
this article if any provision of a contract between the
parties concerned would make netting or set-off void
because of fraud or any similar ground.
Cap. 386.
Cap. 13.
(8) Articles 303, 304 and 315 of the Companies Act and article
485 of the Commercial Code shall only be applicable in relation to
a close-out netting provision where there is fraud on the part of the
party to the agreement not being the insolvent party.
Agreements in 
relation to 
obligations and 
transactions.
4. It shall be lawful for the parties to a contract, when
entering into the contract -
(a) to agree on any system or mechanism which will
SET-OFF AND NETTING ON INSOLVENCY gCAP. 459.  3
enable the parties to convert a non-financial obligation
into a monetary obligation of equivalent value and to
value such obligation for the purposes of any set-off or
netting;
(b) to agree on the rate of exchange or the method to be
used to establish the rate of exchange to be applied in
effecting any set-off or netting when the sums to be set
off or netted are in different currencies, and to
establish the currency in which payment of the net sum
is to be effected;
(c) to agree that any transactions or other dealings carried
out pursuant to any contract, whether identified
specifically or by reference to a type or class of
transactions or dealings, shall be treated as a single
transaction or dealing for the purpose of the set-off or
netting provisions in the contract and that all such
transactions or dealings shall be treated as a single
transaction or dealing by the parties or any liquidator,
receiver, curator, controller or special controller or
other officer acting for the parties and any court.
Applicability to 
branches in Malta.
5. A close-out netting provision entered into by a party which
is a branch in Malta of an oversea company shall be valid and
enforceable in accordance with the provisions of this Act
notwithstanding the provisions of any other law which may be
applicable to such party, including the law under which such
company is constituted.
Inapplicability of 
article 2013 of the 
Civil Code.
Cap. 16.
6. An assignment of a debt or an action forming a part of an
agreement containing a close-out netting provision shall not be
subject to the provisions of article 2013(3) of the Civil Code.
Power to make 
regulations.
Added by:
I. 2004.6.
Cap. 16.
7. (1) The Minister may make regulations to give effect to the
provisions of this Act and, without prejudice to the generality of
the foregoing, may in particular make regulations to transpose and
implement any Directive of the European Parliament and of the
Council on financial collateral arrangements; and, in particular,
regulations relating to any aspect concerning financial collateral
agreements and similar arrangements; such regulations may define
financial collateral, may provide for the rights and obligations of
the collateral taker and the collateral provider, establish formal
requirements and rules on the enforcement of financial collateral
agreements and similar arrangements, the recognition of title and
the non-applicability of certain rules of the Civil Code and of legal
provisions relating to bankruptcy and insolvency, and such
regulations may also provide for relative rules on conflict of laws
and for any other matters as are incidental or connected thereto.
(2) Regulations made under this article may be made and
published in the English language only.
