Set-off by creditors

Set-off is generally permissible if the conditions for such action are met before a bankruptcy declaration is issued, but may be restricted by law or interim measures.

Set-offs are generally covered by the Civil Code. As a rule of thumb, if parties have the same types of claims against one another, either may notify the other party that they are setting off their claim against the counterparty’s. Set-offs may be invoked as soon as a party has the right both to demand satisfaction of a claim and to pay their own debt. This set-off cancels out the two claims to the extent that they coincide with each other. If they do not cover each other completely, the claim is set off in a similar way as in the case of fulfilment. These effects are produced when two claims become eligible for set-off.

In insolvency proceedings, mutual claims of the debtor and the creditor may be set off following a bankruptcy declaration if the statutory set-off conditions (under the Civil Code) have been met before the decision on how to handle the bankruptcy is taken, unless otherwise provided by the Insolvency Act (e.g. if the time limit for debts stemming from a residential tenancy is extended).

Set-off in insolvency proceedings is not admissible, in particular, if the debtor’s creditor has not become a registered creditor with respect to the creditable claim, has obtained a creditable claim as a result of an ineffective legal act, knew that the debtor was bankrupt at the time the creditable claim was acquired, or has yet to pay any due claim the debtor has against the creditor to the extent to which it exceeds the creditor’s own creditable claim, or in cases stipulated by an interim measure of the insolvency court.

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