The application of the compensation law is not limited to a certain type of market player. Compensation agreement counterparties that are registered, regulated or registered in one of the two FREE zones of the United Arab Emirates (DIFC and ADGM) are generally considered to be foreign parties (although the Compensation Act may, in certain circumstances, apply to licensed financial institutions in those areas). A compensation agreement may include a bilateral clearing agreement between two parties, as well as a multi-tiered compensation agreement (which allows for the clearing or settlement of all termination amounts due to all predetermined branches of a branch, regardless of where the transactions were booked). Multi-Branch Netting avoids the potential problem of ring-fencing certain transactions that have been registered in different jurisdictions and which can apply their own insolvency provisions. Currency clearing allows companies or banks to enter the number of foreign exchange and foreign exchange transactions into large transactions and enjoy the benefits of better pricing. If companies have more time and predictability organized in the accounts, they can more accurately predict their cash flow. Any element of uncertainty (gharar) related to a clearing agreement (including the principles governing speculative transactions, as described in the UAE Civil Code) has no bearing on its validity or applicability. Qualified financial contracts are considered final and enforceable. In addition, a qualified financial contract is not or is not applicable if these contracts are considered speculative. In other words, the provisions of the compensation law relating to compensation agreements may repeal the notion of Gharar (which is prohibited) in the uae civil code. Any agreement considered a compensation agreement is applicable in principle in the event of the bankruptcy of the United Arab Emirates counterparty. This implies that companies can also use compensation to simplify third-party invoices, which ultimately makes multiple invoices one.
For example, several divisions of a large carrier purchase paper supplies from a single supplier, but the paper supplier also uses the same carrier to ship its products to others. By paying the amount each party owes to the other partisan debt, a single invoice can be established for the company that has the unpaid bill. This technique can also be used for the transfer of funds between subsidiaries. However, in order to fully understand the objectives of the compensation law, it is important to first understand what compensation is (not). At the most general level, compensation is the ability to equalize mutual claims on the insolvency of a counterparty.