Set-off
You may have come to the set-off page, but chances are, you're really interested in Netting.
At its simplest, a right of set-off exists where there are cross-claims for money between a creditor and a debtor. The effect of a set-off is that both claims are discharged to the extent that they are of an equal amount, and the balance becomes owing to the party who was owed the larger amount.
But, really, it's all about netting.
So go on. Be on your way now.
Ohh, all right. A bit.
Contractual set-off
Where each party to a transaction owes the other they may agree that, instead of making separate payments, the party due to make the larger payment should simply pay the difference. Set off provisions in the ISDA Master Agreement and 2010 GMSLA tend to go a lot wider, and allow (on default) a non-defaulting party to offset amounts owing against any liabilities of any kind owed by the defaulting party. This is clearly a drastic step and ordinarily would only be exercised as an utter last resort. See:
Equitable set-off
This is available to a debtor whose cross-claim arises from the same transaction (or a closely related transaction) as the original debt. Under this device a debtor simply deducts his claim from the debt he owes and tenders any balance to the creditor. The sums in question must be due or, if representing unliquidated damages, ma good faith and reasonable assessment of the loss.
Banker’s set-off
This arises where a customer has multiple bank accounts some of which are in debit and some in credit. It is also known as the combination of accounts. It is arguably available in any situation where one party has multiple accounts with another.
Insolvency set-off
The mandatory rules of insolvency set-off are cannot be varied by agreement. In an insolvency, account must be taken of the mutual dealings between the creditor and the bankrupt. Sums due from one must be set off against the sums due from the other, except that sums due from the bankrupt cannot be included if when incurred the creditor had notice of:
- a resolution or petition to wind-up (if a company);
- an application for an administration order or of notice of intention to appoint an administrator (if a company); or
- a pending bankruptcy petition (if a natural person).
All claims, including future, contingent and unliquidated sums, must be brought into account.