Naslov
The Enforceability of Triangular Set-off Clauses in Bankruptcy Proceedings: The Experience of the US, Germany and Croatia

Autori
Šimunović, Lidija ; Henkel, Christoph

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, pp prezentacija, znanstveni

Skup
Third International & Comparative Insolvency Law Conference

Mjesto i datum
Phoenix (AZ), Sjedinjene Američke Države, 12.11.2021. - 13.11.2021

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
Triangular Set-off, Bankruptcy set-off ; Insolvency set-off

Sažetak
Triangular set-off clauses (so-called cross- affiliates or set-off clauses, hereinafter: set-off clauses) are set-off clauses which enable one company to set-off its debts or liabilities towards a non-affiliated third party with the debts or counterclaims of its subsidiary or affiliate companies. The purpose of these clauses is to allow a holding company to declare set-offs in the name of its subsidiaries and affiliates with the overall goal of preserving the financial stability of the group of companies and despite the lack of mutuality of the debt. It is no surprise that many holdings attempt to rely on triangular set-offs specifically when one of their corporate debtors enters the vicinity of bankruptcy. Regardless, the application of triangular set-off clauses in bankruptcy proceedings remains controversial. For example, in 2018 the U.S. District Court for the District of Delaware directly addressed this issue and held that even though triangular set-offs clauses may generally be enforceable outside of bankruptcy proceedings, these clauses are incompatible with the strict provisions of the U.S. Bankruptcy Code, which requires that mutuality exists and that any debt intended to be offset must be between the “same parties” in the “same capacity.” German courts take a similar position. The Federal High Court of Justice (“Bundesgerichtshof”[BGH]), the highest court for civil and criminal matters in Germany, held that the declaration of set-off against third parties when based on a triangular or similar set-off clause within a group of companies is prohibited. The Court reasoned that since the recognition of set-off clauses during bankruptcy proceedings are legal acts of the debtor to the detriment of all creditors, triangular set-off clauses should be considered illegal assignments post-petition. This paper considers both, arguments in favour and against the enforcement of triangular set- off clauses in bankruptcy. This is done against the background that in the United States and Europe all governmental entities such as the IRS, the SBA or the EPA are generally viewed as a unitary entity and allowed to offset claims despite a lack of mutuality. The paper provides a systematic analysis of the various provisions on triangular set-off clauses as well as the case law in the U.S., Germany and Croatia. In its conclusion, the article will make recommendations to allow the enforcement of triangular set-off clauses under certain circumstances, but not in all cases.

Izvorni jezik
Engleski

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