Set-Off, the 'Anti-Deprivation' Principle and Ipso Facto Clauses in the 'Financial Crisis'

Journal of Banking and Finance Law and Practice, 21 1: 70-78

Posted: 27 Jun 2015

See all articles by Lee Aitken

Lee Aitken

The University of Hong Kong - Faculty of Law

Date Written: 2010

Abstract

The basic rule in any insolvency is that the assets of the insolvent entity must be distributed pari passu among its unsecured creditors. To support this distribution, a collateral "anti-deprivation" rule has been applied in the case law. In Butters v BBC Worldwide Ltd [2009] EWHC 1954 (Butters), Smith J agreed with a submission of counsel who had summarised the "principle" as follows:

The owner of property may, on alienation, qualify the interest of his alienee, by a condition to take effect on bankruptcy; but cannot, by contract or otherwise, qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the disappointment or delay of his creditors. A person cannot make it a part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws. A simple stipulation that, upon a man's becoming bankrupt, that which was his property up to the date of the bankruptcy should go over to someone else and be taken away from his creditors, is void as being a violation of the policy of the bankruptcy laws.

Both a right of set-off and a contractual clause, which attempts to determine an interest upon the happening of some event of insolvency, undermine the usual pari passu rule. In a transnational context, it may be that the entitlement to share in the assets of the insolvent company will be subject to differing national regimes.

JEL Classification: k00

Suggested Citation

Aitken, Lee, Set-Off, the 'Anti-Deprivation' Principle and Ipso Facto Clauses in the 'Financial Crisis' (2010). Journal of Banking and Finance Law and Practice, 21 1: 70-78. Available at SSRN: https://ssrn.com/abstract=2623358

Lee Aitken (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01235

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