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Set Off Settlement Agreement

An effective clearing system is essential for an efficient financial market. [9] Close-out compensation differs from novation offsetting in that it covers all outstanding obligations of the party under a framework contract similar to that used by ISDA. Traditionally, they only work in the event of default or insolvency. In the event of bankruptcy of the counterparty or any other relevant default indicated in the agreement in question when it is accelerated (i.e. executed), all transactions or transactions of a particular type shall be offset at market value or, if the contract indicates otherwise or where it is not possible to obtain a market value, the amount of damage suffered by the non-defaulting party when replacing the contract in question. The alternative would allow the liquidator to choose which contracts should be applied or not (and therefore perhaps „raisin pecking“). [10] There are international jurisdictions where the applicability of bankrupt netting has not been subject to legal scrutiny. [Citation required] The essential elements of closed set-off are as follows: this is different from settlement set-off (see below), since the merger of the two claims into a single balance takes place directly at the conclusion of each subsequent contract. This method of clearing is essential in financial activities, in particular on derivatives transactions, as it avoids the pecking of raisins in the event of insolvency. [8] The effectiveness of pre-insolvency novation compensation in insolvency was examined in British Eagle International Airlines Ltd v Compagnie Nationale Air France[1975] 1 WLR 758. Like settlement clearing, novation clearing is only possible if the liabilities have the same settlement date. This means that if, in the example above, the-2 transaction were to be paid on Friday, the two transactions would not be cleared. Set-off is a legal event and, therefore, the legal basis is necessary for the event that two or more gross claims are set off.

Among these legal bases, one of the common forms is the legal defense of compensation, which was originally introduced to avoid the unfair situation where a person („Party A“) who owed money to another party („Party B“) can be sent to detention, although Party B also owes money to Party A. The law therefore allows both parties to defer payment until their respective rights are judged. It worked as a just shield, but not as a sword. After the decision, both claims are extinguished and replaced by a single net amount due (e.g. B if Part A owes Part B 100 and Part B Part A 105, both amounts are deducted and replaced by a single obligation of 5 from Part B to Party A). . . .