Fiction and reality in insolvency set-off

Thesis

The automatic theory of insolvency set-off has been widely adopted both in this jurisdiction and overseas since Lord Hoffmann’s opinion in Stein v Blake was reported in 1996. Insolvency set-off is ‘automatic’ in that mutual claims are deemed to be set off on the insolvency date by way of a self-executing mandatory insolvency set-off. This thesis is an exploration of the main difficulties caused by the introduction of automatic insolvency set-off. It argues that further consideration be given to the eligibility of the claim and the cross-claim for insolvency set-off being determined on the date on which the set-off account is taken (the ‘date of account’ theory). The argument is made by considering the nature of the automatic theory and the way in which it is said to operate when it conflicts with other legal principles and authorities. In each example, the automatic theory runs into difficulties accommodating this conflict (Chapters 3 to 6). The corollary is that the automatic theory is forced to occupy a diminishing space, ultimately confined to the paradigmatic case of Stein v Blake itself and post commencement interest claims. It is argued (in Chapter 7) that the date of account theory deserves more serious consideration even in the paradigm case. Furthermore, no injustice would result from abandoning the automatic theory, even in the small number of cases that would be decided differently on this thesis. Therefore, further consideration should be given to the date of account theory as it provides a more logical explanation of how insolvency set-off operates. This thesis is not a critical examination of both approaches. It is an exploration of the difficulties introduced by the adoption of automatic insolvency set-off that leads to the conclusion that the date of account theory merits more serious consideration.

This thesis also makes secondary contributions to the law by exploring the treatment of time barred claims brought by insolvent debtors and considering whether the law should incline against the availability of insolvency set-off in that situation (Chapter 4). This thesis also evaluates the distributional rules and the policy issue raised by a creditor’s election between insolvency set-off and the enforcement of its floating charge security (Chapter 6).

Authors: Duncan, S

• DOI: 10.5287/ora-54eogo7z0
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: set-off and security; Insolvency set-off; automatic set-off
• Subjects: Insolvency law, financial law