Netting & Set-Off: Enforceability in the Cayman Islands and BVI

Recent turmoil in the financial markets due to the COVID-19 pandemic has brought with it a wave of margin calls against counterparties to margin loan financings, swap and repurchase agreements and various other equity linked transactions. Measures introduced by governments to curtail the pandemic (including stay-at-home orders and travel restrictions) continue to feed market turbulence and the increasingly global economic slow-down means counterparties are increasingly at risk of default under outstanding trades. In this environment, finance parties may wish to consider steps that can be taken on default to mitigate exposure to financially vulnerable counterparties. Amongst a range of statutory and contractual measures are the application of netting and set-off provisions.

This briefing outlines the enforceability of netting and set-off clauses in such transactions upon the onset of insolvency in the Cayman Islands and the BVI.