Insolvency Set-off, Close-out Netting and Clearing
9 Pages Posted: 14 Nov 2017 Last revised: 15 Nov 2018
Date Written: July 9, 2018
A owes 20 GBP to B and B owes 30 to A ... what are they going to do if they want to be efficient? The answer is probably 'set off'. However, anything beyond this initial reaction is jurisdiction-sensitive and relatively confusing because, as always, labels such as set off, netting, clearing, etc. do not help per se and one has to ask what specific legal mechanisms achieve in functional terms. As a baseline, we can retain that 'net positions' such as set off, netting and clearing are capable of collapsing or combining exposures between parties. This paper maps the economic and legal functionalities of the various types of net positions, in both bilateral and multilateral relationships.
Keywords: set off, close-out netting, insolvency, clearing, settlement, finality, CCP, British Eagle, Ansett
JEL Classification: K11, K12, K22, K33
Suggested Citation: Suggested Citation