Insolvency

Paper Summary:

This paper discusses how the right of combination and set-off, as developed under English law offer a number of safeguards to banks and creditors in general. It looks at how these rights were expanded under the principles that they were necessary to effect substantial justice and that they would stimulate economic growth and trade. It suggests that the judicial application of these rights has tended to unfairly favor banks at the expense of the individual customer, which may initially stimulate growth by encouraging banks to provide loans, but in the long term may serve to deteriorate trade, particularly at the international level. It demonstrates how customers in other countries, particularly civil law countries, experience much more risk when they do business with an English bank and hence may be better off refraining from bringing their enterprises there, or at any rate must be extremely careful in drawing up contracts to insist on settlement of disputes in other jurisdictions.

From the Paper:

"Basically, English set-off allows a creditor to use any money it owes an insolvent debtor to pay off the debtor's liabilities that have become due to the creditor. Thus, when liquidation commences, only the party that had the larger claim is still owed the net balance. Liquidation legally occurs when the company passes a resolution to voluntarily wind up or is judicially wound up. Effectively, eligible creditors (those that meet the mutuality requirement) are positioned alongside secured creditors to the extent of their debt to the insolvent party. Simultaneously, they continue to be placed within the pool of unsecured creditors who (as a result of the speeding of the recovery process for those creditors eligible for set-off, recover a diminished amount themselves) receive dividends on the portion of debt still owed to them by the insolvent party."

More papers on Insolvency:

• Research Paper # 51923 : "The s214 Insolvency Act"
• Creative Essay # 148960 : "A Worldwide Economic Depression"
• Comparison Essay # 124606 : "Working Capital Strategies: Ford and AT&T"

APA Citation:

MLA Citation: