1 Set-off in the French Reform of the Law of Obligations: a Tale of Missed opportunities Matthias E. Storme Institute for commercial and insolvency law KU Leuven

2 General characteristics New 1325: Qualification as “extinction of obligations”. Misses the role as enforcement mechanism & security right >< Insol-Reg (70): “If a set-off of claims is not permitted under the law of the State of the opening of proceedings, a creditor should nevertheless be entitled to the set-off if it is possible under the law applicable to the claim of the insolvent debtor. In this way, set-off would acquire a kind of guarantee function based on legal provisions on which the creditor concerned can rely at the time when the claim arises”. No reflection on its role in property law

3 Terminology No terminology for the different rights, never a rule referring to either the active or the passive claim/obligation >< Rome-I-Reg Art. 17 : “Where the right to set-off is not agreed by the parties, set-off shall be governed by the law applicable to the claim against which the right to set-off is asserted”. Insol-Reg Art. 9: “ The opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of a debtor, where such a set-off is permitted by the law applicable to the insolvent debtor's claim.”

4 Ipso iure effect No longer expressly in the text, but implicit ? Does this still make sense ? If no party asserts set-off … Practical question is whether assertion/notice has retrospective effect or not. Whether retroactivity is a good rule depends on effects in case of insolvency etc.

5 Requirements from the law of obligations : same requirements for passive and active claim. But: -Only active claim should be due; passive claim merely payable -Only active claim should be ascertained* -Exception for restitutionary claims (1325-2: bailment, wrongful dispossession) only relevant for passive claim -Does not clarify whether a (passive) claim can be made not capable of set-off by agreement “Liquidity” required (or judicial set-off): too strict. Comp. DCFR III- 6:103

6 Requirements under property law Text only contains the following: set-off excluded where claim not capable of attachment (insaisissable): but only relevant for the passive claim ‘not prejudiciable to the rights of third parties’: much too vague. Only third parties having acquired a proprietary right in the claim + Silent as to concursus.. Comp. DCFR: -III-6:102: Authority to dispose over the active claim (OK) and over the passive claim (more correctly: authority to collect -(but silent as to concursus) It’s time to accept insolveny set-off even without netting agreement

7 Set-off & connected claims Relevant in case of: - Insolvency / concursus of owner of the passive claim -Acquisition by a third party of (rights in) the passive claim French CC is silent as well in the matter of set-off as in the matter of right to suspend (e.n.a.c.), or rather contradictory: : no prejudice to rights of third parties : set-off possible after acquisition of rights by a third party

8 Netting agreements Art. 1327: parties may … -Nothing about its effects in relation to third parties Art. 7 Collateral directive: “Member States shall ensure that a close-out netting provision can take effect in accordance with its terms: (a) notwithstanding the commencement or continuation of winding-up proceedings or reorganisation measures in respect of the collateral provider and/or the collateral taker; and/or (b) notwithstanding any purported assignment, judicial or other attachment or other disposition of or in respect of such rights”.