The following Banking & Finance Q&A Produced in partnership with Brian Cain provides comprehensive and up to date legal information covering:
This Q&A discusses the rights of a lender to set off a sum that the lender owes to a borrower (eg a credit balance on a deposit account) against an unmatured liability owed by the borrower to the lender, that is a sum that has not yet become due (eg a bullet repayment of a loan falling due in the future).
For an explanation of the basis of set-off and the types of set-off that are available under English law see Practice Notes: What is set-off and when is it available? and Types of set-off.
It is not normally possible for solvent parties to assert a set-off unless the amounts involved are both due and payable.
It is possible for a lender to make provision in a loan document which would allow it to set off a sum it owes to a borrower against an unmatured liability of the borrower.
In an insolvency the mandatory set-off regime relating to liquidation set-off and administration set-off are contained in the Insolvency (England and Wales) Rules 2016, SI 2016/1024 (IR 2016). This regime contains a set of rules for unmatured claims to be valued and set off as part of the insolvency process; see Practice Note: Insolvency set-off—the position under the Insolvency (England and Wales) Rules 2016. What is ‘due and payable’ has a special meaning under IR 2016.
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