A netting agreement is a contractual way to organise the set-off of mutual obligations between parties. Its effect depends on the wording of the agreement, the nature and maturity of the claims, and mandatory statutory limits.
General rule for set-off
Article 410 of the Russian Civil Code allows an obligation to be terminated, in whole or in part, by setting off a counterclaim that is homogeneous and due, or whose due date is not stated or is defined by demand. As a general rule, a unilateral declaration by one party is sufficient when the statutory conditions exist.
Why use an agreement
Parties can agree a different procedure for ending reciprocal obligations, for example by requiring the consent of all parties or by setting a contractual calculation and confirmation process. The agreement should identify the obligations, dates, amounts, currency and the moment at which the parties treat them as terminated.
Conditions to check
- each party is both creditor and debtor in the relevant obligations;
- the claims are homogeneous at the time of set-off;
- the active claim is due, unless the law permits an earlier set-off;
- the claim is sufficiently established and capable of calculation;
- no contractual or statutory restriction prevents the set-off.
Restrictions
Article 411 prohibits set-off of claims for compensation for harm to life or health, lifelong maintenance, alimony, and claims barred by limitation, as well as other cases set by law or contract. Insolvency and enforcement proceedings can introduce additional issues that require separate analysis.
Practical documentation
Keep the agreement, the underlying contracts, invoices or calculations, and the notice or reconciliation document showing what was set off. Where a dispute is possible, clarity as to the date and amount of termination is particularly important.
This material is general information and is not a substitute for advice on a particular transaction.