The transnational insolvency proceedings often bring to the forefront the complex issue of the setoffs: a legal rule allowing the parties, under certain conditions, to offset their mutual debts and claims. The newsletter aims to clarify how setoffs are treated under EU law, with a focus on Italian insolvency proceedings. Although often complex, understanding the applicable laws in these scenarios can be invaluable for creditors, debtors, and legal practitioners alike.
In simple terms, a set-off rule allows two parties, who owe each other money, to cancel out their debts to the extent of the smaller amount, with only the balance remaining payable.
Within the cross-borders insolvency cases, set-offs are a paramount tool to allow the creditors to get a major protection and effetive recover of their claims compared with the unsecured creditors and it is therefore important to understand which is the Law regulating the legal requirements and the proceeding to set-off the claims.
Indeed, if the requirements to offset the claim and the debt are not met: on the one hand, the bankrupt debtor can ask for the full payment of its claims from its debtors but, on the other hand, creditors of the bankrupt debtor are paid by the latter proportionately to each other, within the ceiling of the available assets.
In this regards, EU Regulation 2015/848, governing cross-border insolvency proceedings within the EU, plays a crucial role in determining the law applicable to set-offs. According to this regulation, the law of the state where insolvency proceedings are opened generally applies, impacting both substantive and procedural aspects of the insolvency process. However, the Regulation also provides particular rules specifying that the opening of insolvency proceedings does not affect the right of creditors to demand the set-off of their claims agaist the claims of a debtor, where such a set-off is permitted by the law applicable to the insolvent debtor’s claim.
Whether Italian insolvency law is applicable, the creditor must meet strict requirements to get the offset of the claims. Indeed: (i) the claim must have occurred before the opening of the insolvency proceedings; (ii) the claim must be either liquid and payable, or easy to be liquidated; (iii) the offset is not allowed if the creditor acquired the claim by a deed executed after (or in the year preceding) the application of insolvency proceeding followed by the actual opening of the proceeding.
For creditors with cross-border claims, it is essential to understand both the EU’s overarching regulations and the specific laws of the country where the proceedings are taking place. In Italy, where insolvency laws offer high protection to equal tratment of the creditors, foreign creditors may face legal issues in recovering their claims. Furthermore cross-border set-offs often require validation by courts which are used to have a big discretionary power within the insolvency proceedings.
Understanding the applicable law for set-offs in EU and Italian insolvency proceedings can enhance creditors’ ability to protect their interests. EU Regulation provides a general legal framework while national laws impose unique rules affecting how and when set-offs may be applied. Given the complexity of cross-border insolvency cases, it is paramount for stakeholders to navigate these regulations propertly and consult legal professional effectively to manage the related issues.
