In the first article of a two-part series Simon Duncan reviews the legal basis for a bank to apply insolvency set-off
Set-off is the right of a debtor, himself owed money by his creditor, to effectively secure payment of the debt to him by setting it off against his own liability. In swaps mis-selling claims against banks, banks frequently set-off the company’s debt to the bank against damages or redress payments that the bank owes to the company where the company has gone into liquidation.
In the first part of this two-part article I review the legal basis for a bank to apply insolvency set-off in the following scenario. A bank (“B”) is owed £500,000 on an overdraft advanced to company (“A”). A has since gone into insolvent liquidation.
A (acting by its liquidator) sues B for the mis-selling of an interest rate swap and is awarded £500,000 or is offered the same sum as redress out of court. B then applies statutory insolvency set off pursuant to Insolvency Rule 4.90. The effect is to extinguish the payment to A.
