Knowledge & Insights

Insolvency set-off is an important quasi-security device for parties engaging in trade or other dealings with a company. It enables mutual debts owed between a party and a company to be set off against each other if the company goes into judicial management or liquidation. Without insolvency set-off, a party dealing with a company which enters into judicial management or liquidation would have to pay its debt to the company in full, while only being entitled to receive a pari passu repayment on the debt owed by the company to it (which often may be mere cents on the dollar).

In Park Hotel CQ Pte Ltd (in liquidation) and others v Law Ching Hung and another suit [2024] SGHC 105, the General Division of the High Court (High Court) provided a rare examination of the parameters of insolvency set-off, and held that:

(a) A creditor of a company in insolvent liquidation can only invoke a statutory insolvency set-off against the company (as opposed to other types of set-off, such as legal and equitable set-off). Thus, in proceedings initiated by a company in insolvent liquidation, a defendant can only advance a counterclaim without obtaining the prior permission of court under section 133(1) of the Insolvency, Restructuring and Dissolution Act 2018 if it falls within the scope of insolvency set-off.

(b) A defendant which is sued by a company’s liquidators for alleged wrongdoing cannot rely on insolvency set-off to diminish the claims against him, as a claim based on his wrongdoing does not constitute “mutual dealings” with the company (which is a requirement for insolvency set-off to apply).

This update takes a look at the High Court’s decision.

If you would like information and/or assistance on the above or any other area of law, you may wish to contact the Partner at WongPartnership whom you normally work with or any of the following Partners:

Joel CHNG
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6517 8707
e joel.chng@wongpartnership.com
Click here to view Joel's CV.

Daniel LIU
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6416 2470
e zhaoxiang.liu@wongpartnership.com
Click here to view Daniel's CV.

TAN Kai Yun
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6416 6869
e kaiyun.tan@wongpartnership.com
Click here to view Kai Yun's CV.

Clayton CHONG
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6416 2472
e clayton.chong@wongpartnership.com
Click here to view Clayton's CV.

Adnaan NOOR
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6416 2477
e adnaan.noor@wongpartnership.com
Click here to view Adnaan's CV.

Eden LI
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6517 3766
e eden.li@wongpartnership.com
Click here to view Eden's CV.

Muhammed Ismail NOORDIN
Partner – Restructuring & Insolvency
Partner – Special Situations Advisory
d +65 6517 3760
e muhammedismail.konoordin@wongpartnership.com
Click here to view Ismail's CV.