Resolving the MS Fashions 'Paradox'

Abstract:     
In the context of the decision of the House of Lords in Re Bank of Credit and Commerce International S.A. (No. 8) [1998] AC 214, this short paper asks (i) whether the existence of a charge in one's favour over one's own indebtedness (a 'charge-back') destroys the mutuality necessary for insolvency set-off to operate, and (ii) whether the assets of the insolvent company are notionally collected before the set-off may operate. Both questions are answered in the negative. The paper concludes by suggesting that the reasons given by the courts in justifying the very existence of insolvency set-off also argue in favour of allowing it to operate in the appropriate case, even if there is a charge-back.

Number of Pages in PDF File: 8

working papers series