Insolvency Set-Off in Administration

Case: Re Kaupthing Singer and Friedlander Limited (In Administration)

A recent case in the Court of Appeal ("CA") has provided some useful guidance on the interpretation of rules 2.85 and 2.105 of the Insolvency Rules 1986 ("IR") in the context of insolvency set-off. Specifically, the CA ruled that, where cross-claims exist as between a company in administration and one of its creditors in respect of a future debt, once insolvency set-off has taken effect, the balance due to the company is not also to be discounted to present value, but instead, must be paid at its full value.

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Full Article

Case: Re Kaupthing Singer and Friedlander Limited (In Administration)

A recent case in the Court of Appeal ("CA") has provided some useful guidance on the interpretation of rules 2.85 and 2.105 of the Insolvency Rules 1986 ("IR") in the context of insolvency set-off. Specifically, the CA ruled that, where cross-claims exist as between a company in administration and one of its creditors in respect of a future debt, once insolvency set-off has taken effect, the balance due to the company is not also to be discounted to present value, but instead, must be paid at its full value.

The Law

In brief, Rule 2.85 applies where an administrator has given notice to make a proposed distribution in the administration. It states that an 'account' shall be taken as at the date of the notice of the amounts that are due from each party in respect of 'mutual dealings' and that any sums due from one party shall be set-off against sums due from the other.

Rules 2.105 applies where any sum (due to or from the company) is payable in the future and sets out a formula which is to be applied to discount the sums accordingly.

The Facts

The appellants were the Joint Administrators ("JAs") of the Icelandic Bank, Kaupthing Singer and Friedlander Limited ("KSF"). A number of KSF's depositors had also borrowed money from the bank in the form of loans, several of which were not repayable until some time in the future. The JAs applied to Court for directions in respect of issues concerning:

the way in which claims and cross-claims between KSF and its depositors were required to be calculated and set-off against each other for the purposes of making a distribution; and the treatment of KSF's right to payment of the balance of any loans after the set-off had taken place. Mr Justice Norris ruled that, for the purposes of insolvency set-off, a...