According to the current statutory regulation of article 1982 of the Civil Code, the conditions for set-off are, firstly, performance of the same kind and, secondly, the right to demand settlement of one’s debt at the same time as the right to perform one’s own debt.

As a rule, banks prohibit set-off by unilateral legal action in loan agreements, so only bilateral set-off can be considered. To do so, the client needs to have both a current account and a loan with the bank. On the one hand, there is the client’s claim for the bank to release the money, and on the other hand, the bank’s claim for the client to repay the loan. The client needs the consent of the other party, i.e. the bank, for such set-off, however.

In such a case, a bank in a state of impending insolvency may be worried that the insolvency administrator may challenge such set-off in the future and may delay agreeing to the bilateral set-off. In the case of Sberbank, one can certainly understand the fear of bankruptcy in view of the upcoming situation, although according to the available information, the bank still has sufficient assets at its disposal to avoid insolvency proceedings and a declaration of bankruptcy. In our opinion, fears of a potential set-off challenge are groundless in light of the relevant stipulations of the Insolvency Act and current case law.

Article 140 of the Insolvency Act permits set-off even after the decision on bankruptcy, if the statutory conditions for its implementation are met. This stipulation defines the conditions, under which set-off is not possible without further consideration. However, none of these conditions apply to the model situation under consideration and it can therefore be concluded that the set-off made in accordance with the law and prior to the decision on the bankruptcy resolution method is valid according to the diction of Section 140 of the Insolvency Act. At the same time, we believe that there is no need to be concerned about the possible assessment of the set-off as an ineffective preferential legal act under article 241 of the Insolvency Act. Set-off is a specific form of extinction of a debt, not its fulfilment. It is only in the case of fulfilment of the debt that it would theoretically be possible to argue the ineffectiveness of the respective legal act. However, set-off does not fulfil the general factual essence of an ineffective legal act, nor does it fulfil any of the situations explicitly mentioned in the stipulations of article 241 of the Insolvency Act. In our opinion, on the contrary, the set-off may be viewed as a legal act made under normal commercial conditions, and that is not considered ineffective.

In view of the above, we are of the opinion that even in the event of the worst-case scenario – the bankruptcy of Sberbank – neither the clients nor the bank itself need to worry about a possible challenge to the set-off of claims by the insolvency administrator. If you are currently experiencing this problem, please do not hesitate to contact us. We will be happy to help you with the set-off.

Author: Karel Nejtek