Rights of set-off

Rights of set-off

An agreement defining each party's rights should one party default on its obligation. A setoff is common in parallel loan arrangements.

Rights of Set-Off

A portion of a loan agreement stating the rights of each party should one party or the other default on his/her obligations. Rights of set-off are most often stated explicitly when two parties are lending money to each other. See also: Parallel loan.
References in periodicals archive ?
It was not in dispute that the terms of the LMA syndicated loan facility were effective under the general law of contract to exclude the defendants' rights of set-off.
In addition to any rights of set-off a party may have as a matter of law or otherwise, upon the occurrence of an Event of Default with respect to a party ...
However, notification of the debtor triggers a change in which the debtor may discharge its obligation, freezes the debtor's rights of set-off to those available at the time of notification and makes any change to the original contract subject to the actual or constructive consent of the assignee.
The debtor is discharged if the debtor pays in accordance with such a notification, but the assignee does not obtain any (other) benefit from such a notification (e.g., the debtor is not precluded from accumulating rights of set-off even after such a notification).
These provisions deal mainly with the debtor's discharge, defenses, rights of set-off of the debtor, and waivers of such defenses or rights of set-off.
(54) This means that a notification is effective even if it does not include a payment instruction (or includes a payment instruction that runs counter to Article 15(2)) and is given only with a view to freezing the debtor's defenses and rights of set-off.
With respect to the debtor's defenses and rights of set-off, the Convention codifies generally accepted rules, under which the debtor may raise against the assignee any defenses or rights of set-off that the debtor could raise if the claim had been made against the assignor.
Rights of set-off that become available to the debtor after notification may not be raised against the assignee.
The debtor may waive its defenses and rights of set-off by agreement with the assignor.
This decision will help define the ability of banks to exercise their rights of set-off against the accounts of a customer who is in bankruptcy.
This situation created quite a problem for financial institutions that wished to exercise their rights of set-off. The Bankruptcy Code recognizes the rights of set-off to the extent that they exist in each of the various states.
In these circumstances, the law now provides that the bank may put a hold on those depository accounts so long as it takes immediate action to seek approval from the court to exercise rights of set-off. Accordingly, in this type of situation, you should place an administrative hold upon those depository accounts and you should contact counsel immediately to take the necessary action to seek authority for the set-off in compliance with the Strumpf decision.