Set-off in the Context of Receivable Financing

Abstract

The English law on set-off bears particular importance to modern commercial and financial transactions. Unlike the lender-borrower structure in conventional loans, the implications of set-off are more complicated in the context of receivable financing where three parties are involved. For a receivable financer, the existence of the right to set-off by the debtor is a key risk that may affect successful debt collection, since it may operate to diminish or even extinguish the value of the receivables he purchased; for a receivable seller seeking receivable financing on a non-recourse basis, his primary concern is on containing the risk of recourse from the financer due to set-off by the debtor. This article explains the circumstances a debtor may exercise set-off against debt assigned from the seller to the financer through receivable financing, and the implicating risks from both the perspective of the financer and seller. The article further highlights particular negotiation points between the financer and seller with regards to mitigating risks associated with such set-off.