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Setoff
With certain exceptions, a supplier is entitled to
setoff any unpaid claims against the bankrupt customer when the customer makes a
claim against the supplier. 11 USC 553. The right of setoff is unavailable where
the debt was incurred for the purpose of obtaining the right ot setoff or where
creditor acquired the claim (other than from the bankrupt) during the 90-day
pre-petition period.
The right of setoff is bilateral. Triangular setoff
among related entities is not permitted. [In re: Turner, 59 F.3d 1041, 33
C.B.C.2d 1784 (10th Cir. 1995).
Creative outsourcing suppliers and customers can derive value from this
principle.
Related topic:
Bankruptcy in Outsourcing
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