Navigating Netting Law – Legal Insights from Across MENA
Financial Services Focus
Ali El HawaryPartner,Head of Banking and Finance- Egypt
Natalia KumarSenior Counsel,Banking & Finance
Muhammad MithaSenior Counsel,Banking & Finance
Ambreen BidiwalaSenior Counsel,Banking & Finance
Dana AbduljaleelPartner, Banking & Finance (Jordan & Iraq)
Madhurima BasuSenior Counsel,Banking & Finance
Muhammad Ammad YasinSenior Counsel,Banking & Finance
Asad VellaniAssociate, Banking and Finance
Lara ElmaniSenior Associate,Banking & Finance
Nawar Al-AmeriAssociate,Banking & Finance
Netting is the primary way of reducing risk in financial market contracts, enhancing stability and deepening liquidity. However, the legal framework and enforceability of netting arrangements vary across different jurisdictions, especially in the Middle East and North Africa (“MENA”) region, where there are diverse legal systems and regulatory regimes. In this article, we provide an overview of the netting regulations and practices in nine MENA jurisdictions: KSA, UAE, Bahrain, Qatar, Oman, Kuwait, Jordan, Egypt and Iraq. We highlight the key features, challenges, and implications of netting agreements in each country, and offer some practical guidance and insights for market participants.
The Saudi Central Bank (“SAMA”) has issued a new regulation titled "Close-out Netting and related Financial Collateral Regulation” (the “KSA Netting Regulations”) The KSA Netting Regulations, effective from the 17th of February 2025, establishes a comprehensive framework for the enforceability of netting agreements and related financial collateral arrangements, particularly in the context of bankruptcy proceedings. SAMA has issued the KSA Netting Regulations pursuant to Article 214 of the KSA Bankruptcy Law determining the contracts and transactions that are exempted from the provisions of the KSA Bankruptcy Law especially the restrictions on set-off.
In addition, the Capital Market Authority (“CMA”) has recently published the “Draft Regulatory Framework for Close-Out Netting for Capital Market Institutions” inviting market participants’ feedback on the draft framework by 26 March 2026.
The KSA Netting Regulations applies to netting agreements and related financial collateral arrangements connected with one or more Qualified Financial Contracts (“QFCs”). These contracts must involve at least one party under SAMA's supervision.
The KSA Netting Regulations define some key terms, including:
Netting: Broadly includes – of any present or future payment or delivery obligations or entitlements or determination of close out value and the net amount under or in connection with one or more Qualified Financial Contracts.
Netting Agreement: Broadly, this is an agreement that provides for the netting of payment or delivery obligations arising from one or more Qualified Financial Contracts.
Collateral Arrangements: Collateral arrangements including, over cash, securities, commodities, letters of credit or other movable security created under the Movable Assets Security Law.
Qualified Financial Contract (“QFC”): This definition includes a wide range of financial agreements such as a broad range of derivatives contracts, securities and commodities contracts (including repo and lending contracts), Shari’ah compliant contracts which is economically similar to these contracts and any agreement, contract or transaction designated as a QFC by SAMA under the Netting Regulation, as detailed in Annex (1) of the KSA Netting Regulations.
Multi-Branch Netting: Multi-branch netting is covered where one party is not based in KSA and has entered into a QFC through its branch or agency in KSA.
The primary objective is to ensure the enforceability of netting agreements and related financial collateral arrangements both outside and within bankruptcy proceedings.
The KSA Netting Regulations provide for:
Enforceability Provisions
Qualified Financial Contracts: QFCs are enforceable and valid according to their terms, regardless of any changes in circumstances post-agreement. Specifically, netting agreements incorporated in the QFCs are valid even once procedures under the KSA Bankruptcy Law (e.g., protective settlement, restructuring, liquidation) have commenced.
Financial Collateral Arrangements: Where collateral arrangements are put in place to secure the obligations of under a QFC, such arrangements including security over cash, securities or other movables are enforceable even upon the commencement of procedures under the KSA Bankruptcy Law.
Multibranch Netting Agreements: These agreements are enforceable against a Bankrupt Local Branch, with specific limitations on the liabilities and rights of both the Non-Bankrupt Party and the Foreign Multibranch Party.
General Provisions
Enforceability Against Bankrupt Parties: Netting agreements are enforceable against bankrupt parties and their guarantors or collateral providers, without being stayed or limited by bankruptcy proceedings.
Systemically Important Financial Institutions: However, this will not affect SAMA and CMA’s authority under the Law of Systemically Important Financial Institutions, to stay the right to terminate, liquidate or accelerate any present or future payment or delivery obligations in connection with Qualified Finance Contracts to which the netting agreement applies.
Limitation on Payment Obligations: After the initiation of bankruptcy proceedings, the obligation is to pay a net amount as determined by the netting agreement.
Protection Against Bankruptcy Laws: The KSA Netting Regulations ensure that the provisions of a netting agreement are not affected by bankruptcy laws that limit set-off or netting rights.
The new regulations by SAMA provide a robust legal framework for the enforceability of netting agreements and financial collateral arrangements, offering greater certainty and protection for parties involved in QFCs. Entities under SAMA's supervision should review their existing agreements and ensure compliance with the new regulation to benefit from its provisions.
Within the UAE, there are three jurisdictions with distinct regimes governing netting: the UAE mainland, where Federal laws apply; and the Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”), which each have standalone legislation and netting frameworks that are generally netting-friendly.
Netting in the UAE MainlandAs of 2 January 2025, a Federal Law No 31 of 2024 regarding Netting (the “UAE Netting Law”) came into effect, repealing the old netting law, Federal Decree Law No. 10 of 2018 (the “old netting law”). While the old netting law marked the regulation of netting for the first time in the UAE mainland, the UAE Netting Law now reflects the latest market developments and best practices, as well as addressing some of the concerns and queries that arose under the old netting law.
Article (5) of the UAE Netting Law provides the contracts, transactions or procedures that constitute Qualified Financial Contracts (“QFCs”), which are similar to those under the old netting law, including but not limited to: (i) all types of swaps in relation to currencies, interest rate, basis rate and commodities; (ii) foreign exchange, securities or commodities transactions; (iii) cap, collar or floor transaction; (iv) forward rate agreements; (v) currency or interest rate future/option; (vi) different kind of derivatives such as credit, energy, bandwidth, freight, emissions, economic statistics, property index derivatives; (vii) securities contract, commodities related to contract, collateral arrangements; (viii) agreements to clear or settle securities transactions; and (ix) any derivative such as swap forward, option, contract for differences. The UAE Netting Law has expanded the scope of QFCs that can be netted to include new asset classes in line with market trends, including derivates linked to digital assets, carbon credits, and sukuk-linked products.
Pursuant to the Netting Law, the Central Bank of the UAE now has the authority to designate (or revoke the designation of) any financial agreement, contract or transaction as a QFC in coordination with the Securities and Commodities Authority and other relevant regulators.
Netting is defined in the UAE Netting Law as the occurrence of any or all of the following: (a) the termination, liquidation, or acceleration of payments or obligations under a QFC, (b) the calculation and conversion of close-out or termination values into a single currency, (c) the determination and payment of the net balance of these values, and (d) the obligation of one of the parties to the netting agreement to pay, or continue payment of, the net balance as a result of entering into a transaction under which the net balance becomes due for payment directly or as part of the consideration for a specific asset or as a provision to pay damages related to the failure to implement that transaction.
An agreement is considered a netting agreement under the UAE Netting Law if: (a) it provides for the netting of current or future payments or obligations arising from QFCs between the parties, (b) it is a master agreement for the netting of amounts due under other netting agreements, (c) if it relates to collateral arrangements that are part of or apply to such agreements. A netting agreement also includes any agreement that is compliant with Islamic Shari'ah and has the same purposes as the above agreements, as well as any agreement that covers contracts or transactions that fall within the definition of QFCs.
The UAE Netting Law generally provides that a netting agreement and QFC should be enforceable in accordance with its terms, including against an insolvent party, a guarantor, or a third-party security provider, even if such security provider becomes insolvent, superseding the provisions of Federal Decree Law No. (51) of 2023 Promulgating the Financial Reorganization and Bankruptcy Law. The UAE Netting Law also provides protection for QFCs against prohibitions on aleatory contracts (Gharar) under any UAE law (which was formerly limited to the prohibition under Federal Law No. 5 of 1985 in the old netting law), including those related to gambling, betting, or lotteries. Under the UAE Netting Law, parties to a netting agreement are also prevented from claiming that a QFC is non-Shari'a compliant if they have confirmed Shari'a compliance at the outset of the contract, which provides clarification to a noteworthy ambiguity under the old netting law. While the UAE Netting Law is an important and positive development for the UAE derivatives market, it ultimately remains untested in the UAE courts.
In addition to the updated range of QFCs and increased protections against challenge under the UAE Netting Law, the UAE Netting Law also provides additional benefits, including (but not limited to):
confirming that title transfer collateral arrangements relating to netting agreements should not be recharacterised as security interest arrangements, resolving a critical uncertainty under old netting law.;
clarifying the applicability of the UAE Netting Law to parties such as supranational organisations, regional development institutions, and political units or sub-departments affiliated with local or central governments; and
offering severability of provisions under a netting agreement relating to contracts, agreements or transactions other than QFCs, which allow such agreement to still be deemed a netting agreement only with respect to those contracts that fall within the definition of a QFC.
Netting in the DIFCNetting is recognised in the DIFC pursuant to DIFC Law No. 2 of 2014 (“DIFC NettingLaw”). Article 3 of the DIFC Netting Law defines a netting agreement as (a) any agreement between two parties that provides for netting of present or future payment or delivery obligations or entitlements or obligations, or entitlements to make, receive or require payments or deliveries, arising under or in connection with one or more qualified financial instruments entered into under the agreement by the parties to the agreement, (b) any master agreement between two parties that provides for netting of the amounts due under two or more master netting agreements; and (c) any collateral arrangement related to or forming part of one or more of the foregoing.
Qualified financial instruments (“QFIs”) are defined in the DIFC Netting Law “as any financial agreement, contract or transaction pursuant to which payments or obligations are to be performed, or titles to certain commodities or assets are to be transferred, for consideration at certain agreed time or within a certain period of time whether or not subject to any condition or contingency, or pursuant to which obligations to make payments or deliveries or title transfer over commodities or assets are to be entered into or incurred.
The DIFC Netting Law provides a non-exhaustive list of QFIs that derive value from underlying assets or commodities including, but not limited to, any asset such as currency, equity, index, interest rate, bond or debt security index, property index, and other forms of derivative products. QFIs also cover (without limitation) spot, future, forward or other securities or commodities transaction, commodities contract (i.e. commodities repurchase, or reverse repurchase agreement, a commodities lending agreement or commodities buy/sell back agreement), collateral agreement and/or and Shari'a compliant contracts or undertakings that have a similar economic effect to any of the above.
The DIFC Netting Law also gives the Dubai Financial Services Authority the power to designate or revoke any agreement, contract or transaction as a QFI by written and published notice.
Separate to the DIFC Netting Law, Part 8 of DIFC Law No. 4 of 2024 (the “DIFC Law of Security”) regulates the creation, effectiveness, priority and enforcement of security rights in financial collateral, which are defined as money credited to a bank account, financial property held in an account with an account provider, or a receivable arising from close-out netting arrangements. Part 8 (Financial Collateral Arrangements) of the DIFC Law of Security provides for two types of financial collateral arrangements: title transfer collateral arrangements (which take effect in accordance with their terms) and security financial collateral arrangements (which can be made effective against third parties by way of control as opposed to registration). The Law of Security allows a secured creditor to exercise a right of use in respect of the financial collateral and to enforce the security right by collecting, disposing of or appropriating the financial collateral upon the occurrence of an enforcement event, without any formal act or court intervention.
Netting is defined under the DIFC Netting Law as (a) the termination, liquidation and/or acceleration of any payment or delivery obligations or entitlements under one or more QFIs entered into under a netting agreement; (b) the calculation or estimation of a close-out value, market value, liquidation value or replacement value in respect of each obligation or entitlement or group of obligations or entitlements terminated, liquidated and/or accelerated under paragraph (a) of this definition; (c) the conversion of any values calculated or estimated under paragraph (b) of this definition into a single currency; (d) the determination of the net balance of the values calculated under paragraph (b) of this paragraph, as converted under paragraph (c) of this paragraph, whether by operation of set-off or otherwise; or (e) entry by the parties into a transaction pursuant to or by virtue of which such a net balance becomes payable directly or as part of the consideration for an asset or the provision for the payment of damages relating to any non- performance of any such transaction.
The DIFC Netting Law provides that a netting agreement and a QFI would be enforceable in accordance with its terms, notwithstanding the appointment of a liquidator or an action of a liquidator, any provision of law relating to bankruptcy, liquidation, reorganisation or other similar insolvency related actions. The powers of liquidators are limited under the DIFC Netting Law, to preserve the obligations of the insolvent party under a netting agreement. Notwithstanding this, a liquidator of an insolvent party can seek to avoid or render ineffective any transaction where there was an intention to hinder, delay or defraud any person to which the insolvent person was indebted or became indebted. The DIFC Netting Law confirms that a QFI will not be deemed void or unenforceable by reason of being, or having the characteristics of, a wager, lottery, gambling or gaming contract.
Netting in the ADGMWhile the ADGM does not have a standalone netting legislation, netting is recognised in the ADGM and governed under the provisions of the ADGM Insolvency Regulations 2022 (“ADGM Insolvency Regulations”). Part 7 (Financial Markets And Netting) of the ADGM Insolvency Regulations applies to any qualified financial contract, netting agreement or collateral arrangement (including any title transfer collateral arrangement) which is governed by ADGM law or which is entered into by a person incorporated or registered in the ADGM or organised under a ADGM law, irrespective of the date on which such qualified financial contract, netting agreement or collateral arrangement was entered into.
Qualified Financial Contracts (“QFCs”) are defined in the ADGM Insolvency Regulations as any financial agreement, contract or transaction, including any terms and conditions incorporated by reference in any such financial agreement, contract or transaction, pursuant to which payment or delivery obligations are due to be performed at a certain time or within a certain time period and whether or not subject to any contingency. The scope of QFCs under the ADGM Insolvency Regulations is identical to the QFIs under the DIFC Netting Law, whereby the Board of Directors of the ADGM , by published notice, retains the power to designate any agreement, contract or transaction a QFC.
Under the ADGM Insolvency Regulations, a netting agreement is defined as (a) any 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 or other contracts or transactions entered into under the agreement, or to which the agreement applies, by the parties to the agreement, (b) any master agreement between two parties that provides for netting of the amounts due under two or more master netting agreements, (c) any other agreement between two or more parties which incorporates netting and (d) collateral arrangement related to or forming part of one or more of the foregoing.
The provisions of the ADGM Insolvency Regulations also deal with the creation, enforcement and priority of collateral arrangements. A collateral arrangement under the ADGM Insolvency Regulations may be a title transfer collateral arrangement, which transfers ownership of the collateral (which may include cash, securities, guarantees, credit claims or any asset commonly used as collateral in the ADGM) to the collateral-taker until the relevant obligations are discharged, or a security interest, which grants the collateral-taker a right to take possession or control of the collateral or to sell or appropriate it in case of default. Such collateral arrangements are effective and enforceable in accordance with their terms, without any formal act or registration, unless otherwise agreed by the parties.
Netting, as defined under the ADGM Insolvency Regulations, means the occurrence of any or all of the following (a) the termination, liquidation and/or acceleration of any payment or delivery obligations or entitlements under one or more QFCs entered into under a netting agreement; (b) the calculation or estimation of a close-out value, market value, liquidation value or replacement value in respect of each obligation or entitlement or group of obligations or entitlements terminated, liquidated and/or accelerated under paragraph (a) of this definition; (c) the conversion of any values calculated or estimated under paragraph (b) of this definition into a single currency; (d) the determination of the net balance of the values calculated under paragraph (b) of this paragraph, as converted under paragraph (c) of this paragraph, whether by operation of set-off or otherwise; or (e) entry by the parties into a transaction pursuant to or by virtue of which such a net balance becomes payable directly or as part of the consideration for an asset or the provision for the payment of damages relating to any non- performance of any such transaction.
The ADGM Insolvency Regulations provides, amongst other things, that a netting agreement and QFC will be enforceable in accordance with its terms, including against an insolvent party, and, where applicable, against a guarantor or other person providing security for a party (including a guarantor or other person that is insolvent) and will not be stayed, avoided or otherwise limited by relevant insolvency proceedings (including the appointment of an office-holder such as a receiver, administrator or liquidator). Similar to the DIFC, the ADGM Insolvency Regulations also provide that a QFC shall not be and shall be deemed never to have been void or unenforceable by reason of the laws of the ADGM relating to games, gaming, gambling, wagering or lotteries.
Netting in BahrainNetting is recognised under Law No. 64 of 2006 promulgating the Central Bank of Bahrain (“CBB”) and Financial Institutions Law, as amended (“CBB Law”). Article 1 of the CBB Law defines a “Market Contract” “as a contract concluded in accordance with the regulations of the CBB and Article 108(b) of this law.” Resolution No. 44 of 2014 with respect to promulgating a regulation for close-out netting under a Market Contract (“Bahrain Netting Regulations”) in turn defines a “Market Contract” as “For the purposes of this Regulation only, the expression “Market Contract” as used in Article 1 and Article 108 of the Law shall be reference to “Qualified Financial Contract” as used in this Regulation.”
A Qualified Financial Contract (“QFC”) is defined as any financial agreement, contract or transaction, including any terms and conditions incorporated by reference in any such financial agreement, contract or transaction, pursuant to which payment or delivery obligations are due to be performed at a certain time or within a certain time period and whether or not subject to any contingency.
QFC include (without limitation) various swaps such as currency, cross-currency, interest rate, and basis swaps; spot, future, forward, or other foreign exchange and securities or commodities transactions; commodity swaps; forward rate agreements; currency or interest rate futures and options; derivatives related to bonds, debt securities, or bond/debt security index’s (e.g., total return swaps, index swaps, forwards, options, or index options); credit derivatives such as credit default swaps, credit default basket swaps, total return swaps, and credit default options; securities contracts, including margin loans, agreements to buy, sell, borrow, or lend securities (e.g., securities repurchase/reverse repurchase agreements, securities lending, and buy/sell-back agreements), including those agreements relating to mortgage loans or mortgage-related securities; commodities contracts, including agreements to buy, sell, borrow, or lend commodities (e.g., commodities repurchase/reverse repurchase agreements, commodities lending, and buy/sell-back agreements); credit or collateral arrangements; agreements to clear or settle securities transactions or act as a depository for securities; and any other agreements, contracts, or transactions designated as such by the CBB under the Bahrain Netting Regulations.
Netting is defined in the Bahrain Netting Regulations as the occurrence of any or all of the following: (1) the termination, liquidation and/or acceleration of any payment or delivery obligations or entitlements under one or more QFC’s entered into under a netting agreement; (2) the calculation or estimation of a close-out value, market value, liquidation value or replacement value in respect of each obligation or entitlement or group of obligations or entitlements terminated, liquidated and/or accelerated under paragraph (1) of this definition; (3) the conversion of any values calculated or estimated under paragraph (2) of this definition into a single currency; or (4) the determination of the net balance of the values calculated under paragraph (2) of this paragraph, as converted under paragraph (3) of this paragraph, whether by operation of set-off or otherwise.
A netting agreement is defined in the Bahrain Netting Regulations as (1) any 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 QFC’s entered into under the agreement by the parties to the agreement, (2) any master agreement between two parties that provides for netting of the amounts due under two or more master netting agreements; and (3) any collateral arrangement related to or forming part of one or more of the foregoing.
Pursuant to the CBB Law and the Bahrain Netting Regulations, QFC’s should be enforceable in accordance with its terms except in certain limited circumstances. The provision of the CBB Law and the Bahrain Netting Regulations will not be affected by any applicable law limiting or prohibiting the exercise of the rights of set-off, offset or netting of obligations or payments of any netted value between an insolvent and a non-insolvent party – thus overriding the position in Law No. 22 of 2018, as amended, promulgating the Restructuring and Insolvency Law as well as the insolvency provisions contained in the CBB Law.
Netting in the State of Qatar and Qatar Financial Centre (QFC)There are two separate jurisdictions in the State of Qatar, (i) the Qatar Financial Centre (“QFC”) and, (ii) Qatar itself (that is, outside of the QFC) (“Qatar”). While QFC is a netting friendly jurisdiction, there is currently no law in Qatar that specifically deals with netting of derivatives transactions, and therefore reliance is placed on the concept of set-off as discussed below.
Since there is no formal netting law in Qatar that allows for close-out netting, reliance is typically placed on the set-off provisions under Law No. 22 of 2004 (the “Qatar Civil Code”).
Contractual set-off is permitted prior to the initiation of bankruptcy proceedings in Qatar, as outlined in Articles 390 to 397 of the Qatar Civil Code. Under these provisions, matured funds may be set off if they are undisputed, even if the settlement location of the debts differs or the currency of the obligations is not the same. However, there are exceptions to this rule for set-off prior to bankruptcy proceedings. Set-off will not be allowed if a court order has frozen the bank account from which the funds are to be set off.
Additionally, set-off is prohibited if one of the debts arises from acquiring an asset without the owner's consent, or if the debt pertains to an asset placed in custody for a specific purpose or provided on loan. Set-off will also not be permitted if one of the debts involves a right that is not subject to attachment, or if the debt involves alimony payments.
The main issue arises where the Qatar counterparty is facing insolvency. Insolvency and bankruptcy provisions are set out in Law No. 27 of 2006 (the “Qatar Commercial Code”).
After the adjudication of bankruptcy, Article 632 of the Qatar Commercial Code restricts the ability of a creditor to use set-off as a remedy unless there is a link or interconnection between the payment obligation of the bankrupt entity and the funds of the debtor which are creditor’s possession. What constitutes interconnection between obligations is not defined under the Qatar Commercial Code. However, examples indicate the obligations arising from the same subject matter or economically linked transactions. Each transaction would have to be assessed on a case-by-case basis as there is no case law in Qatar that deals with this issue, and because the insolvency regime in Qatar remains largely untested.
The QFC has issued Netting Regulations in 2017 (the “QFC Netting Regulations”) which deals with the enforceability of certain types of financial contracts and the ability of financial institutions apply close-out netting provisions and to terminate, liquidate and/or accelerate any payment or delivery obligations or entitlements between two contracting parties, particularly in insolvency.
The QFC Netting Regulations apply to any QFI, including but not limited to netting agreements and collateral arrangements, that are governed by QFC Law or entered by a person incorporated, registered, or organised under QFC Law. As specified in Article 9 of the QFC Netting Regulations, QFI is defined as a financial instrument or transaction under which payment or delivery obligations are to be performed, or title to commodities or assets is to be transferred. Additionally, it includes obligations to incur payments or deliveries, or to transfer title to commodities or assets. A detailed list of instruments, agreements, or transactions considered QFI is provided in Article 9(2) of the QFC Netting Regulations.
Netting agreements and QFI are enforceable in accordance with their terms, both pre and post insolvency of a counterparty. Additionally, collateral arrangements related to or forming part of an agreement are considered as a netting agreement and QFI. Such agreements will be enforceable against the insolvent party and (where applicable) the collateral provider, all in accordance with the terms agreed in the netting agreement and/or the collateral agreement.
The QFC Netting Regulations also place certain restrictions and limitations on the liquidator’s powers of the insolvent entity in the QFC. The liquidator will not be able to repudiate contracts or transactions in a manner that would prevent the creditor or secured party from exercising close out netting provisions or from liquidating a relevant collateral under a netting agreement. The QFC Netting Regulations do, in uncertain terms, require a netting agreement’s enforcement in accordance with its terms.
Netting and Contractual Set-OffOman currently has no sperate netting law, and Oman Law does not specifically refer to “netting” either. Netting, however, closely resembles the principle of set-off, and the concept of set-off is recognised under the Royal Decree 29 of 2013 (the “Oman Civil Code”). Set-off is defined under Article 247 of the Oman Civil Code as the satisfaction of a debt owed to the creditor by a debt owed thereby to their debtor. Set-off may either be compulsory, voluntary, or judicial. Compulsory set-off occurs by law and requires that the parties are debtor and creditor to each other, the debts are identical in type, description, maturity, strength, and weakness, and the set-off does not harm the rights of others. Voluntary set off is done by agreement where the conditions for compulsory set-off are not met, and judicial set-off is carried out by a court ruling.
Under Article 112 of Royal Decree 53 of 2019 (the “Oman Bankruptcy Law”), no set-off can take place between the bankrupt debtor’s rights and obligations after an adjudication of bankruptcy is issued, unless such rights are correlated. Under the Oman Bankruptcy Law, such correlation shall be deemed to be in place if the rights and obligations arise out of one reason or are covered by a current account to which the debtor is a party. It is important to note that entities licensed by the Central Bank of Oman (e.g. banks and financial institutions) under the Royal Decree 2 of 2025 (the “Oman Banking Law”) as well insurance companies licensed under Royal Decree 12 of 1979 (the “Oman Insurance Companies Law”) are not subject to the provisions of the Oman Bankruptcy Law, whose insolvency and winding up is dealt with separately in accordance with their respective laws. It is also important to note that the Oman Bankruptcy Law is relatively new and remains mostly untested.
Kuwait currently has no separate netting law. However, as “netting” closely resembles the principle of set-off and the concept of set-off is recognised under Kuwait Law, parties rely on set off to get a similar result
Set-off prior to bankruptcy proceedings is covered under Articles 425-432 of Kuwait Law 67 of 1980 promulgating the civil code. Under these provisions, matured funds may be set off if they are undisputed, even if the settlement location of the debts differs or the currency of the obligations is not the same. However, there are exceptions to this rule for set-off prior to bankruptcy proceedings.
Additionally, set-off is prohibited if one of the debts arises from acquiring an asset without the owner's consent, or if the debt pertains to an asset placed in custody for a specific purpose or provided on loan. Set-off will also not be permitted if one of the debts involves a right that is not subject to attachment, or if the debt involves alimony payments or the set off is to the detriment of the rights of third parties.
While set off is recognised widely under Kuwait Law, in the context of insolvency, there are restrictions on the use of set-off. Article 238 of Kuwait Law No. 71 of 2020 promulgating the bankruptcy law (the “Kuwait Bankruptcy Law”) states that once bankruptcy procedures have commenced, set off is not permissible unless the same is in made based upon the implementation of the preventive settlement proposal or the restructuring plan or based upon the decision of the bankruptcy judge.
Accordingly, the applicability and effect of the set-off regime is uncertain given the Kuwait Bankruptcy Law is still new and there is no precedent related to its interpretation and implementation. However, transactions can be structured in various ways to order to mitigate certain risks relating to the limitations of close-out netting in a bankruptcy scenario.
Netting and Set-Off in JordansNetting arrangements are not specifically regulated or recognised under Jordanian laws and regulations. Rather, the most analogous provisions to netting, are those found under the Jordanian Civil Code pertaining to set-off, and it is expected that a Jordanian court may take a similar approach in dealing with netting.
The Jordanian Civil Code recognises three types of set-off: compulsory set-off, which occurs by operation of law; voluntary or contractual set-off, which is made by agreement between the parties; and judicial set-off, which is implemented pursuant to a court decision.
In order to affect a compulsory set-off, each party must be a creditor and debtor to the other, and the two debts must be analogous in kind, description, maturity, security, force, and weakness. Further, said set-off should not prejudice the rights of others. Whereas, contractual set-off may generally be affected where one of the conditions of compulsory set-off are not satisfied.
Under the laws of Jordan, contractual set-off is permitted prior to the counterparty becoming insolvent. However, following insolvency, set-off is not permitted unless the conditions for compulsory set-off are met, i.e. each party is a creditor and debtor to the other, and the two debts are analogous in kind, description, maturity, security, force, and weakness, and provided that said set-off is not prejudicial to the rights of others.
Thereby, the recognition of netting arrangements post-insolvency, would depend on whether the court viewed each confirmation (and the payment obligations under it) as part of the same dealing, or as a separate and distinct contract.
Netting of Payments in Egypt: Legal Landscape and Practical ConsiderationsIn Egypt, the legal framework surrounding netting is nuanced and requires careful navigation to ensure enforceability and compliance with local laws.
In Egypt, there is no specific legislation that directly addresses netting. Instead, netting is treated similarly to "set-off" under Egyptian law. The Egyptian Accounting Standard No. 25, issued by the Investment Ministerial Decree No. 111 of 2015, acknowledges the concept of a “Master Netting Agreement”. This standard defines a Master Netting Agreement as an arrangement where parties enter into multiple financial transactions and subsequently perform a single net settlement for all transactions covered by the agreement in the event of a breach or termination.
Law No. 131 of 1948 (the “Egyptian Civil Code”) provides the general principles governing set-off. Under these provisions, a debtor can offset mutual debts with a creditor, even if the causes of the debts differ, provided that the debts are monetary or fungible, due, undisputed, and legally actionable. This principle applies broadly to all types of counterparties, including financial institutions, corporates, and public law entities.
The enforceability of netting provisions becomes particularly complex in the context of bankruptcy. Law No. 11 of 2018 (the “Egyptian Bankruptcy Law”) reintroduces the concept of a "suspect period," which begins on the judicially declared date of default and extends to the date of the bankruptcy declaration. This period can be up to two years prior to the declaration of bankruptcy.
During the suspect period, transactions between a bankrupt entity and its creditors may be deemed void if they involve the payment of a debt not yet due, the gift of property, or the provision of security for an existing debt. The bankruptcy judge has the discretion to nullify contracts entered into during this period if the other party was aware of the entity's insolvency and the transaction is detrimental to the creditors.
After the issuance of a bankruptcy order, the provisions of the ISDA Master Agreement that allow the non-defaulting party to terminate all transactions may be at risk of being disallowed. The Egyptian Bankruptcy Law stipulates that netting of the bankrupt's rights and debts is permissible only if a "link" exists between them, such as arising from the same reason or being part of a current account. While transactions under a single ISDA Master Agreement might meet these criteria, the final determination rests with the court.
It should be noted that the Egyptian Banking Law excludes the application of the provisions of the Egyptian Bankruptcy Law on banks registered with the Central Bank of Egypt. Instead, the provisions of Chapter 12 of the Egyptian Banking Law apply to financially distressed banks. This chapter provides a distinct framework for handling the financial distress of banks, which may offer different protections and procedures compared to the general bankruptcy provisions.
In conclusion, while netting of payments is recognised under Egyptian law through the principles of set-off, the lack of specific netting legislation and the complexities introduced by bankruptcy laws necessitate careful structuring and legal consultation. Market participants should remain vigilant and proactive in ensuring their transactions are compliant and enforceable within the Egyptian legal framework.
Netting is a recognised concept in Iraq under Banking Law No. 94 for 2004 (the “Iraq Banking Law”) as it defines netting under Article 83.4.b of Iraq Banking Law as the consolidation of multiple claims and obligations from transfer orders between participants in a settlement system into a single net claim or obligation. This allows offsetting amounts to leave only one outstanding obligation or claim. However, recognition of netting arrangements only applies in the context of an insolvent bank, licensed by the Central Bank of Iraq (“CBI”).
The Iraq Banking Law states that nothing in this law or any decision made under it, other than what is stipulated in Article 88, prevents or prohibits the netting of obligations between an insolvent bank and its counterparties under the law. Accordingly, the Iraq Banking Law determines the rights and obligations between an insolvent bank and its counterparties by applying the termination and netting provisions in “valid financial contracts” between the two parties or after it is registered as a claim for the counterparty.
Valid Financial Contracts include, but are not limited to:
interest rate or currency swap agreements;
basis swap agreements;
spot or forward or future or other agreements regarding foreign currency agreements specifying cap or floor transactions;
commodity swap agreements;
forward rate agreements;
repurchase or reverse repurchase agreements;
spot or forward or future or other commodity sale agreements;
agreements for the sale, purchase, borrowing, or lending of securities, or for the settlement of securities transactions, or acting as a securities depository; and
any derivatives, options, master agreement, or guarantee of obligations under or related to the aforementioned agreements.
Noting that the CBI has the discretion to determine transactions and agreements as “valid financial contracts”, in this context, by regulation.
The Iraq Banking Law recognises claims against an insolvent bank if; (i) the claims raised prior to the issuance of an insolvency order by the Financial Court; or (ii) the claims are registered with the judicial guardian over the insolvent bank by writing and within sixty (60) days of the issuance of the insolvency decision per a request by the debtors from the financial court upon satisfying the documentation requirements. Noting that there is minimal precedence in terms of how an Iraqi court would recognise netting arrangements (including as whether each Confirmation forms part of the same transaction or not), in a formal insolvency proceeding.
In the last few years, netting regulations have evolved significantly in the MENA region to reflect global best practice, and most jurisdictions are now netting-friendly or taking concrete steps to become a positive netting jurisdiction. Netting regulations continue to evolve, which signals the region’s commitment to remaining an attractive location for global investors.
For further information, please contactNatalia Kumar (Bahrain)Muhammad Mitha (Qatar)Dana Abduljaleel (Jordan)Ambreen Bidiwala (KSA)Ali El Hawary (Egypt)Lara Elmani (U.A.E.)Asad Vellani (Oman)Nawar Al-Ameri (Iraq)Muhammad Ammad Yasin (U.A.E)
Published in March 2025
