Insolvency Act 1986, section 323

Mutual credit and set-off

Part IX Bankruptcy

(1)This section applies where before the commencement of the bankruptcy there have been mutual credits, mutual debts or other mutual dealings between the bankruptcy and any creditor of the bankrupt proving or claiming to prove for a bankruptcy debt.

(2)An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other.

(3)Sums due from the bankrupt to another party shall not be included in the account taken under subsection (2) if that other party had notice at the time they became due that [F837proceedings on a bankruptcy application relating to the bankrupt were ongoing or that F837] a bankruptcy petition relating to the bankrupt was pending.

(4)Only the balance (if any) of the account taken under subsection (2) is provable as a bankruptcy debt or, as the case may be, to be paid to the trustee as part of the bankrupt’s estate.

Definitions used in section 323 2

bankruptcy debt

(a) in relation to a bankrupt, means a person to whom any of the bankruptcy debts is owed (being, in the case of an amount falling within paragraph (c) of the definition in section 382(1) or “bankruptcy debt”, the person in respect of whom that amount is specified in the criminal bankruptcy order in question), and

Defined in s.383(1) · see it in the full Act
party

(3) In section 72B(1) and this paragraph “party” to an arrangement includes a party to an agreement which—

(a)forms part of the arrangement,

(b)provides for the raising of finance as part of the arrangement, or

(c)is necessary for the purposes of implementing the arrangement.

Defined in Sch.2A para.1(3) · see it in the full Act

(4) “Party” to an arrangement includes a party to an agreement which—

(a)forms part of the arrangement,

(b)provides for the raising of finance as part of the arrangement, or

(c)is necessary for the purposes of implementing the arrangement.

Defined in Sch.ZA1 para.19(4) · see it in the full Act

Cases considering section 323 16

Oraki & Anor v Dean & Dean (A Firm) & Ors

[2013] EWCA Civ 1629 · 18 December 2013

Before annulment, the trustee has a proprietary right to retain sums necessary to meet bankruptcy expenses. That right supports the normal practice of paying or securing proper expenses before assets are removed from the trustee. (see para [63])

Squires & Ors v AIG Europe (UK) Ltd & Anor

[2006] EWCA Civ 7 · 18 January 2006Limits

The court treated statutory mutual set-off as taking priority over the equitable contribution rule. Where set-off is unavailable because of double proof, the equitable rule remains applicable. (see paras [79]-[80], [98]-[100])

Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd

[2000] EWCA Civ 507 · 31 July 2000

The court treated the individual-insolvency set-off provision as indistinguishable in substance from rule 4.90 for the purpose of applying the explanation of insolvency set-off in Stein v Blake.

1 more judgment, and what each says about section 323, are in the case-law panel in the full Act.

Amendments and notes

3 notes from legislation.gov.uk

Amendments

  1. F837Words in s. 323(3) inserted (6.4.2016) by Enterprise and Regulatory Reform Act 2013 (c. 24), s. 103(3), Sch. 19 para. 27; S.I. 2016/191, art. 2 (with art. 3)

Modifications

  1. C1050S.323 applied with modifications by S.I. 1986/1999, art. 3, Sch. 1 Pt. II
  2. C1051S. 323 modified (25.4.1991) by Companies Act 1989 (c. 40), ss. 154, 155, 163(2)(b), 182(4),Sch. 22 para. 6(2)(b); S.I. 1991/878, art. 2, Sch..