9 China

Subject(s):

Banks and cross-border issues — Credit derivatives — Close-out netting — Contractual set-off — Insolvency set-off — Judicial set-off

This chapter examines the applicability of the law of set-off in China in cases involving solvent parties and against a party subject to a bankruptcy proceeding. It first explains statutory set-off under the Chinese Contract Law and contractual set-off between solvent parties before discussing set-off against insolvent parties, focusing on the relevant provisions of the Bankruptcy Law and requirements for insolvency set-off. It also considers the procedures for exercising the right to insolvency set-off, set-off right in the context of close-out netting in cross-border over-the-counter (OTC) derivatives transactions, restrictions on unfair preference for creditors and set-off, restrictions on banks' set-off rights against deposits, and set-off vis-a-vis clearing houses. The chapter concludes with an analysis of cross-border issues arising in set-off between solvent parties and against insolvent parties.