Set-off allows one party to apply a debt owed to it by its counterparty to discharge all or part of a debt that it owes to that counterparty. Parties to financing transactions often rely on set-off to reduce their credit exposure to their counterparties.
However, its a complex and often misunderstood area of the law. One complexity is that set-off rights can arise under common law, equity, statute or contract. Each different type of set-off can only be exercised under specific circumstances and has its own peculiar rules. To add to the veil of confusion, these different types are commonly referred to by different names.
This Practical Law Australia Banking and Finance toolkit provides a collection of practical resources on its use in financing transactions, including:
- Practice note: Set-off
- Standard clause: Set-off clauses used in finance documents
- Standard clause: Set-off permitted for both parties (used in commercial agreements)