Set Offs

Matters affecting your cash flow – set off of debts between debtors and creditors

A right of set-off arises through the mutuality of a debit and a credit.  When a person is both owed money by and owes money to someone the net balance is calculated and that balance is then payable or receivable.

This right applies outside insolvency law, but it has been included in the Corporations Act (S553C) for various reasons, including that it will not apply when the person had notice of the insolvency of the company at the time of giving or receiving the credit.  This provision stops people manufacturing a beneficial set-off when they know the company is insolvent.

In most cases, whether or not a set-off applies can be determined fairly easily.  However sometimes parties may need to examine the facts to determine whether or not a set-off applies.

As cash flow is vital to any business, at Batten Sacks we provide legal advice with regard to recovery of trade debtors and related matters.  To obtain further information please contact Trevor Rosenthal on telephone (03) 8680 5555 or email

Please note that the advice in this communication is general advice only and you should not rely on this advice unless you obtain legal advice specific to your own requirements.