19.01  Under the Japanese Civil Code (Minpo) (the Civil Code),² set-off (sosai) is, along with performance (bensai), novation (kokai), release (menjo), and merger (kondo), classified as a cause by which an obligation may be extinguished, and it is not categorized as a right. However, set-off possesses a number of characteristics that would warrant treating it as a right, ie each of the two parties has a reasonable expectation that the other party’s claim may be used in reduction of its claim against the other. As a result, a set-off is viewed by some scholars as being not just a mechanism for avoiding multiplicity of payments, but more a right deserving (p. 284) protection.³ Further, while the settlement (kessai) is heavily regulated by the banking regulations under Japanese law, the settlement that satisfies requirements of set-off under the Civil Code is considered to be exceptional. Thus, especially in the context of FinTech, the availability of set-off is quite often discussed.

19.02  Under the Civil Code,⁴ two claims are eligible to be set off if all of the following conditions are met, unless the relevant parties have agreed to prohibit or restrict set-off:⁵

1. (1)  the claims are mutual,

2. (2)  the subjects of the claims are of the same kind,⁶

3. (3)  the claims are due and payable,⁷ and

4. (4)  the claims are not of a kind that cannot be subject to set-off.⁸

19.03  Among the above conditions, mutuality as referred to under (1) above is the most important. Mutuality, as that expression is used in the context of the set-off provisions of the Civil Code, requires both of the claims to be validly in existence at the time of set-off. Consequently, it will not be possible for a person to exercise a statutory set-off right if either of the claims has not arisen or is invalid at the relevant time. In addition, mutuality requires that two persons owe obligations to each other. Therefore, it is not possible for one party (A) to set off a debt owed by A to second party (B) against a debt owed to A by a third party (C) pursuant to the statutory set-off provisions contained in the Civil Code. For example, a (p. 285) bank may only apply a credit balance in a bank account held by a customer (the Depositor) with itself in or towards satisfaction of a debt owed by a customer (the Borrower) to the bank if the Depositor and the Borrower are the same person. The bank may not set off the credit balance owed by the bank to any third party for such purposes unilaterally (whether such third party is a subsidiary, related company, or otherwise of the Borrower).⁹

19.04  Under the Civil Code, a right of set-off will become operative if either party notifies the other of its intention to exercise the right. This notification may be made judicially or extrajudically. Thus, a set-off will not operate automatically upon the fulfilment of the statutory requirements—a notice by one party of its intention to exercise the set-off right is also needed. However, it is possible for the parties to contract out of the notification requirement. The parties may also, by agreement, draft the set-off provisions in such a way that their mutual claims are automatically set off against each other upon the occurrence of certain events (without the need for either party to make the notification). Set-off will take effect retroactively as of the time when the obligations of both parties became due and suitable for set-off.¹⁰

19.05  The issue regarding enforceability of set-off against attaching creditors or assignees becomes more serious in an insolvency situation, and thus such an issue is discussed in the ‘Set-off against Insolvent Parties’ section below, although the Civil Code sets forth rules with no distinction between the solvent situation and the insolvent situation.

19.06  The Civil Code does not prohibit the creation of contractual set-off rights, and therefore persons owing mutual obligations to each other may, on the basis of the principle of freedom of contract, agree to set off their obligations in any manner they determine unless such agreement is against the public policy of Japan. In such cases, parties to a contract are only subject to the general principles of contract law and are not required to satisfy all the statutory requirements of set-off prescribed by the Civil Code, including the notification requirement, mentioned above.¹¹ A set-off provision requiring the maturities of mutual claims to be accelerated upon the occurrence of certain events, thereby causing the statutory (p. 286) requirements of set-off to be automatically satisfied, has been held by the Supreme Court to be valid.¹²

19.07  With respect to triangular set-off, however, there is an argument over its validity. The legal validity of the arrangement when parties have agreed to allow the netting using claims triangularly held by multiple parties in the event of default or otherwise has been discussed for a long time. This issue has usually been discussed in the context of triangular set-off, and there is continuing controversy over triangular set-off. The Civil Code has a provision of unilateral set-off but does not have any provision regarding multi-party set-off. Having said that, although the legal ground or reason may vary according to academics or depending on the case, it may be said that triangular set-off has been commonly considered valid on the basis of the principle of freedom of contract, as well as bilateral set-off described in paragraph 19.06 above, as long as any relevant claim has not been attached by other creditors, any relevant claim has not been assigned to a third party, or any insolvency procedure has not been commenced against any relevant party.

19.08  Once any of the relevant claims is attached by another creditor, any of the relevant claims is assigned to a third party, or an insolvency procedure is commenced to any relevant party, the validity and effectiveness of triangular set-off could be disputed. There are two important Supreme Court precedents that were held on 18 July 1995 and 8 July 2016, in considering this question, the details of which are covered in paragraph 19.27 of the ‘Set-off against Insolvent Parties’ section below. However, what should be noted here is that the Supreme Court judgment dated 8 July 2016 may have a negative impact on controversy over triangular set-off even among solvent parties, because the judgment seems to require the rigid mutuality of claims to be set off at least in cases where there is any third party having an interest in relevant claims.

19.09  Once an insolvency proceeding has commenced with respect to one of the parties under any of the insolvency laws in Japan, namely the Bankruptcy Act (Hasanho) (BA), a liquidation procedure;¹³ the Civil Rehabilitation Act (Minji Saiseiho) (CIRA), a rehabilitation procedure;¹⁴ or the Corporate Reorganization Act (Kaisha Koseiho) (CRA), a reorganization procedure,¹⁵ any exercise of set-off (p. 287) rights becomes subject to the applicable provisions of these insolvency laws. It should be noted here that each of these laws, like the Civil Code, distinguishes between a right of set-off on the one hand and a security interest on the other.¹⁶ This demonstrates that a right of set-off does not constitute a security interest under Japanese law.

19.10  Article 67, paragraph 1 of the BA provides that a creditor of a bankrupt debtor may exercise a set-off against obligations owed by the creditor to the debtor at the time of the commencement of bankruptcy proceedings, and that this set-off can be exercised outside the bankruptcy proceedings. Thus, a creditor of a bankrupt debtor owing an obligation to the debtor at the time of the commencement of bankruptcy proceedings may immediately exercise a set-off against such obligation. Furthermore, a creditor of a bankrupt debtor will not be precluded from exercising a right of set-off even if, at the time of the commencement of the relevant bankruptcy proceedings, its claim against the debtor has not become due, or the claim of the debtor against the creditor has not become due.¹⁷ Consequently, in the context of insolvency set-off based on the set-off provisions of the BA, it is not necessary to show that the third requirement of set-off prescribed by the Civil Code (namely two claims being due and payable) is satisfied. This is probably intended to protect the reasonable expectation of a bankruptcy creditor who regards set-off as fulfilling a similar function to that of a security interest (although, as noted above, a right of set-off can be distinguished from a security interest).

19.11  Article 92, paragraph 1 of the CIRA provides that if (i) a creditor of a debtor who is subject to rehabilitation proceedings owes an obligation to the debtor at the time when the relevant proceedings are commenced, and (ii) the statutory requirements of set-off were satisfied prior to the expiration of the period for the filing of rehabilitation claims, then the creditor may exercise a set-off right outside the rehabilitation plan, provided that such set-off needs to be exercised prior to the expiration of the filing period. This applies even if none or only one of the obligations subject to the set-off has matured at the time of the commencement of the relevant proceedings, as long as they become due prior to the expiration of the period for the filing of rehabilitation claims. Further, Article 92, paragraph 2 of the CIRA provides that if a creditor of a debtor who is subject to rehabilitation proceedings owes a rent-payment obligation to the debtor at the time of the commencement of such proceedings, the creditor may, within the period referred to in Article 92, paragraph 1, exercise a set-off right against the rents that will become due after the commencement of such proceedings (including those rents that will become due after the expiration of the period referred to above) up to (p. 288) six times the amount of the monthly rent payable at such time. This right may be exercised outside the rehabilitation plan.

19.12  Further, as under the CIRA, the CRA provides that if (i) a creditor of a debtor who is subject to reorganization proceedings owes an obligation to the debtor at the time when the relevant proceedings are commenced and (ii) the statutory requirements of set-off were satisfied prior to the expiration of the specified period for the filing of reorganization claims, then the creditor may exercise a set-off right outside the reorganization plan, provided that such set-off needs to be exercised prior to the expiration of the filing period.¹⁸ This applies even if none or only one of the obligations subject to the set-off has matured at the time of the commencement of the relevant proceedings, so long as they become due prior to the expiration of the period for the filing of reorganization claims.

19.13  Further, Article 48, paragraph 2 of the CRA provides that if a creditor of a debtor who is subject to reorganization proceedings owes a rent-payment obligation to the debtor at the time of the commencement of such proceedings, the creditor may, within the period referred to in Article 48, paragraph 1, exercise a set-off right against the rents that will become due after the commencement of such proceedings (including those rents that will become due after the expiration of the period referred to above) up to six times the amount of the monthly rent payable at such time. This right may be exercised outside the reorganization plan.

19.14  Whenever a right of set-off is to be exercised, whether pursuant to the BA, the CIRA, or the CRA, a notice of intention to exercise the set-off right must be given to the other party.¹⁹

19.15  In any proceedings under the BA, the CIRA, or the CRA, the exercise of set-off rights may, in certain cases, be limited by the application of the principle that requires all creditors of the relevant company to be treated equally according to their respective status.

19.16  Under the BA, the exercise of set-off rights by a creditor against a bankrupt debtor is restricted in cases where the creditor incurred the obligation to the debtor after: (i) bankruptcy proceedings had commenced, (ii) the debtor had become insolvent (shiharai funo),²⁰ (iii) the debtor had suspended its payments (p. 289) (shiharai teishi), or (iv) a bankruptcy petition had been filed. The extent or severity of the restriction depends upon the timing of when the creditor’s obligation to the bankrupt debtor arose. Specifically:

• •  in the case where the creditor’s obligation to the bankrupt debtor arose after the occurrence of the event set out under (i), the exercise of set-off rights is prohibited without exception;

• •  in the case where the creditor’s obligation to the bankrupt debtor arose after the occurrence of the event set out under (ii), the exercise of set-off rights is prohibited if the creditor incurred the obligation in the knowledge of the debtor’s insolvency and certain other conditions are satisfied; and

• •  in the case where the creditor’s obligation to the bankrupt debtor arose after the occurrence of the event set out under (iii) or (iv), the exercise of set-off rights is prohibited if the creditor incurred the obligation in the knowledge that the debtor had suspended its payments or that a bankruptcy petition had been filed, as applicable.²¹

19.17  The exercise of set-off rights by a creditor against a bankrupt debtor in bankruptcy proceedings is also restricted where the creditor acquired a claim against the bankrupt debtor after: (i) bankruptcy proceedings had commenced, (ii) the debtor had become insolvent, (iii) the debtor had suspended its payments, or (iv) a bankruptcy petition had been filed. While a set-off is prohibited without exception where such claim was acquired after the occurrence of the event set out under (i) above, where such claim was acquired after the occurrence of the event set out under (ii), (iii), or (iv) above, a set-off is only prohibited if such person acquired the claim with the knowledge of the event set out under (ii), (iii), or (iv), as applicable.²²

(p. 290) 19.18  Notwithstanding the provisions of the BA described above, in certain exceptional cases where the expectation arising from reliance on the security function of set-off needs to be protected, an exercise of a set-off is allowed even if any of the foregoing events has occurred.²³

19.19  Each of the CIRA and the CRA has provisions equivalent to the ones set out.²⁴

19.20  As described in the ‘Legislative overview’ section above, Japanese insolvency laws, namely the BA, the CIRA, and the CRA, have provisions about requirements for the exercise of set-off rights outside insolvency proceedings. Similarly, in the cases where a claim has been attached by another creditor or where a claim has been assigned to another person, the enforceability of set-off against such attaching creditors or assignees will become an important issue. The Civil Code has provisions regarding the enforceability of set-off against attaching creditors or assignees.

19.21  Article 511 of the Civil Code renders ineffective as against an attaching creditor any set-off of claims in relation to a debtor where the attached claim was acquired after the attachment had become effective. In a leading Supreme (p. 291) Court case on this point decided in 1970,²⁵ the Supreme Court broadly construed this provision in favour of the creditor exercising the set-off and held that, unless the attached claim was acquired after the attachment had taken effect, the set-off may be exercised against the attached claim, irrespective of which of the claims that are subject to the set-off will become due first.²⁶ Although subsequent cases have followed this decision, the fact that the case involved a number of special features (such as the involvement of a tax authority and the exercise by a bank of a contractual set-off pursuant to a set-off clause contained in a standard agreement on banking transactions²⁷) means that the extent to which the decision can be used as authority to support the existence and application of set-off rights in circumstances where there is no contractual right of set-off is debatable, and each transaction needs to be looked at on a case-by-case basis.²⁸

19.22  With respect to Article 511 of the Civil Code, apart from the above, there has been dispute over whether the set-off may be exercised against a claim of the counterparty (debtor) when the claim has arisen but not become due. In this respect, the Supreme Court judgment dated 26 September 2012²⁹ admitted the enforceability of the set-off in the case where a debtor’s guarantor acquired the right to reimbursement against the debtor after the insolvency procedure had been commenced against debtor. In this case, the guarantor obtained the right to reimbursement after the commencement of the bankruptcy procedure, but (p. 292) the guarantor had originally been responsible under the guarantee agreement which had been executed before the commencement of the bankruptcy procedure. Therefore, the Supreme Court took the view that the acquisition of the right to reimbursement would be reasonably expected and that the guarantor’s right to set-off acquired thereafter needed to be protected and enforceable even though the guarantor actually acquired the right to reimbursement against the debtor after the commencement of the bankruptcy procedure. Given that this Supreme Court judgment has permitted the exercise of set-off broadly in a bankruptcy procedure, more scholars have considered that the exercise of the set-off should be allowed and enforceable against attaching creditors, including when the claim has already arisen but not become due at the time of attachment.

19.23  Given that situation, the Revised Civil Code will clearly prescribe the rules on the effectiveness of set-off against the attaching creditors, which follows the views indicated in the Supreme Court judgments mentioned above. Specifically, it will be amended to clarify that unless the claim has been acquired by a creditor after attachment has taken effect, the exercise of set-off by a creditor against a claim of a debtor shall be enforceable against the attaching creditor, including when the claim of a debtor has already arisen but not become due at the time of attachment.

19.24  Article 468, paragraph 2 of the Civil Code provides that the obligor of a claim that has been assigned by the obligee to an assignee may assert against the assignee any defences that the obligor could have asserted against the obligee arising from events that took place prior to the obligor receiving a notice of the assignment. In a case that is often cited on this issue, the Supreme Court judgment dated 8 December 1975³⁰ (relying on the decision made by the Supreme Court in 1970 on the enforceability of a set-off against an attaching creditor, as described in paragraph 19.21 above) held that the obligor of an assigned claim may set off the claim that it acquired prior to receipt of a notice of the assignment of the claim against the assigned claim, without regard to which claim will become due first. However, in that case the assignee of the claim in question was a director of the assignor company and thus knew or could have easily known of the existence of the claim of the obligor against the assignor company.³¹ Because of this, the decision is regarded as having only limited value as a precedent.³²

19.25  The Revised Civil Code will, however, clearly prescribe the rules on the effectiveness of set-off against the assignee, which follows the views indicated in the (p. 293) Supreme Court judgment mentioned above. More specifically, the Civil Code is expected to have a new provision describing that unless the claim has been acquired by an obligor after the assignment has been perfected, the exercise of set-off by the obligor against an assignor shall be enforceable against an assignee, including when the claim of an obligor has arisen from events that took place before the assignment was perfected but has not become due. With respect to the term ‘perfected’ herein, there are three approved methods of perfection by which a claim holder (assignee) that obtained its rights to the claim through an assignment may assert priority over a competing third party: (i) the written notice bearing a certified date of the assignment by the assignor to the assignee, (ii) the obligor’s written consent bearing a certified date, or (iii) registration of the assignment with the Legal Affairs Bureau. As well as new rules on set-off against attaching creditors in paragraph 19.23 above, the Revised Civil Code aims to protect the obligor’s expectation that the claim can be set-off even when the claim has been assigned to a third party.

19.26  The Civil Code does not have a provision of triangular (or multi-party) set-off, and there has been controversy over its validity and effectiveness, which is still unclear (see above, paragraph 19.07). In connection with this, the central counterparty (CCP) clearing system implemented by the Financial Instruments and Exchange Act³³ (Kin’yu Shohin Torihiki Ho) in line with the statement at G20 summits after the Lehman shock may be the only recognized mechanism that has a function of multi-party set-off/netting, because it is broadly believed that the validity and enforceability of the CCP mechanism were already and legally endorsed by the FIEA. With respect to other contractual settlement arrangements using triangular (or multi-party) set-off, however, it is quite possible that the validity and effectiveness of the set-off are disputed if any relevant claim is attached by another creditor or assigned to a third party, or if an insolvency procedure is commenced to any relevant party.

19.27  There are two important Supreme Court precedents which were held on 18 July 1995, and 8 July 2016, and referred to this point.³⁴ The Supreme Court judgement (p. 294) dated 18 July 1995 (‘Judgment 1995’) constructed the logic that viewed triangular set-off as consisting of two transactions, ‘a transfer of claim’ and ‘a subsequent set-off’. Based on this logic, it has been commonly interpreted that triangular set-off is allowed when the set-off against assignees are enforceable (see ‘Set-off against assignees’ section above), although in the case of Judgment 1995 the set-off was held to be not enforceable. On the other hand, the Supreme Court judgement dated 8 July 2016 (‘Judgment 2016’)³⁵ ruled that a person who owes an obligation to the rehabilitation debtor must not be allowed to set off claims held by others against its obligations. It stated that such a set-off arrangement does not satisfy the requirements that ‘claims must be mutual’ and, further, it violates the principle of equal treatment among general creditors, even when such arrangement had been made among all relevant parties before the commencement of the rehabilitation procedures. To understand Judgment 2016, we should note the obiter dictum by Judge Katsumi Chiba as well. Judge Chiba thinks that, in general terms, if (i) the relevant parties to multi-party netting are limited to affiliates in a close organizational or business relationship sharing joint risk management, (ii) the scope of claims used for multi-party netting is specified, and (iii) the creditor clearly expresses its intention to agree the multi-party netting, it could be interpreted that such netting arrangement satisfies the requirement that claims must be mutual.

19.28  Both Judgment 1995 and Judgment 2016 were rendered in order to give conclusions on specific cause of actions in particular cases. Therefore, it has not been clear whether the standards indicated in these judgments would apply to future similar cases. There are some views that Judgment 2016 cannot be interpreted as a complete (p. 295) denial of the enforceability of triangular set-off in terms of the obiter dictum by Judge Chiba.³⁶ However, in light of the current situation that Judgment 2016, requiring the rigid mutuality of claims, has been rendered while there had been no clear argument about the validity and enforceability of triangular-set off, it is highly likely that Judgment 2016 will have a negative impact on the validity and enforceability of triangular set-off, especially when any insolvency proceeding has commenced against the relevant party.

19.29  As stated above, there are some provisions in the Civil Code and in insolvency laws that set forth the general principle on enforceability of set-off, including in cases where an insolvency procedure has been commenced against the debtor. However, from a practical point of view, there are various types of transactions that might allow different interpretations on whether requirements for set-off are satisfied, and such uncertainty may be considered a legal risk. Since it is significantly important for financial institutions to eliminate such legal risk,³⁷ the Act on Collective Liquidation of Specified Financial Transactions Conducted by Financial Institutions, etc (Kin’yuu Kikan tou ga Okonau Tokutei Kin’yuu Torihiki no Ikkatsu Seisan ni kansuru Horitsu)³⁸ was enacted in 1998 to announce the validity and enforceability of ‘close-out netting’³⁹ in the event of insolvency of a certain financial institution or its counterparty. Furthermore, even with respect (p. 296) to cases where the Netting Act does not apply, Article 58 of the BA expressly provides for early termination of transactions relating to a product that has a price quoted on an exchange or otherwise has a price in the market and recognizes netting of claims and obligations arising out of such transactions calculated pursuant to the master agreement. Article 58 of the BA applies mutatis mutandis to a corporate reorganization proceeding under the CRA and civil rehabilitation proceeding under the CIRA.⁴⁰ These provisions of the Netting Act or insolvency laws do not purport to have any adverse effects, whether expressed or implied, on the efficacy and strength of existing interpretations of law or the validity of netting arrangements that may not meet the conditions prescribed in the Netting Act or insolvency laws and thus may fall outside its scope. Even without close-out netting provisions under the master agreement, a non-defaulting party can have recourse to set-off that will allow for the same result as will be achieved through the use of close-out netting provisions.

19.30  Recently, in line with the ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’ issued by the Financial Stability Board in October 2011 for the purpose of establishing orderly resolution regimes in order to prevent a recurrence of the 2008 financial crisis, the Deposit Insurance Act (Yokin Hokenho)⁴¹ was amended to introduce a new resolution regime from the viewpoint of preventing systemic risk. Under this regime, when the Prime Minister is to make a determination of certain special resolution proceedings, the Prime Minister will have the authority to suspend the application of any early-termination provisions of certain financial agreements, together with the application of netting arrangements such as set-off or close-out netting, for a period designated by the Prime Minister. If an application of a temporary stay is determined and announced, the effect of any set-off or close-out netting provisions will be frozen during the stay period, and the transaction will continue for the stay period as if no such special resolution proceedings have occurred. The temporary stay is intended to enable the troubled financial institution to be transferred to an acquiring financial institution or to a bridge financial institution that shall be a solvent financial institution. In other words, the suspension of an early-termination clause or set-off clause is one of the tools to transfer asset of a ‘bad bank’ to a ‘good bank’. Even though there is no clear and explicit numerical length of the period in the provisions of the Deposit Insurance Act, it is expected that the length of the stay period will be, and should not substantially exceed, two business days.⁴²

19.31  In cases where set-off contains or relates to cross-border factors, whether or not Japanese law shall apply to such cross-border set-off is determined by the conflict-of-law rules. In Japan, the Act on General Rules for the Application of Laws⁴³ constitutes the main body of Japanese conflict-of-law rules. However, there is no specific provision in the Conflict Laws Act that stipulates the governing law applicable to set-off, and there has been no Supreme Court judgment resolving this issue.

19.32  There are three major academic opinions regarding the governing law of the validity or enforceability of set-off. One opinion is that set-off should be governed by the law governing the claim to set-off (active claim), another opinion is that set-off should be governed by the law governing the claim to be set-off (passive claim), and a third opinion is that both laws of active claim and passive claim apply cumulatively. It is generally believed that because the third opinion is most widely accepted,⁴⁴ the right to set-off should satisfy the requirements needed both under the law of active claims and under that of passive claims. In this context, if the right to set-off is a claim arising from a contract, the law governing the set-off right shall be the governing law of the contract. If the right to set-off is a claim arising from a non-contractual relationship, the governing law of that claim should be basically considered as the law with which the obligation is most closely connected, for example the law where any tort or wrongful act occurred, or the law where both parties reside, depending on the case.⁴⁵

19.33  Although there is no specific provision in the Conflict Laws Act that stipulates the governing law applicable to the contractual set-off, it is generally understood that, from a perspective of the principle of the conflict of laws, contractual set-off shall be characterized as a contract to which parties to a contractual set-off may choose the governing law.

19.34  Under Japanese insolvency laws, an insolvency proceeding pursuant to Japanese laws may be commenced with respect to Japanese individuals, corporations, entities, or organizations, as well as any branch or office in Japan of foreign corporations. Regarding cases where any Japanese insolvency proceeding has been commenced, there is no precedent and there are two major academic opinions on the governing law of set-off. One opinion is that set-off in an insolvency situation should be governed by the law of the jurisdiction where the relevant insolvency proceeding has been commenced, and the other opinion is that it should be governed by the governing law of set-off in a pre-insolvency situation, namely the law governing both of the claims to be set off. Practically, the governing law on set-off will be determined by a judge of each insolvency procedure under this circumstance, and the Japanese insolvency court would probably apply Japanese law to govern the set-off; further, it may cumulatively apply the governing laws of the claims to be set off or netted.

19.35  Generally speaking, Japanese law tends to protect the enforceability of set-off, including against competing third parties, such as assignees of the claim or attaching parties, and in the event of insolvency proceedings. Subject to some exceptions, the set-off rights can be broadly exercised outside the insolvency proceedings. This means that a right to set-off has a similar function to that of a security interest, although in legal terms a right to set-off does not constitute a proprietary security interest. Such views as considering that the exercise of set-off rights should be allowed broadly has been the mainstream recently, reflecting the tendency of Japanese court precedents to try to protect the expectations of creditors who often regard set-off as fulfilling its obligation, which is similar to that of a security interest, while it is true that there has been some controversy on the scope of set-off rights because the provisions of the Civil Code or the insolvency laws are not clear enough. The Revised Civil Code will clearly prescribe the rules on the effectiveness of set-off against the attaching creditors, which are consistent with the views indicated in the Supermen Court judgments mentioned above.

19.36  Apart from the above, with respect to triangular set-off, it is unlikely that the validity and enforceability of triangular set-off will be smoothly accepted, especially when any insolvency proceeding has commenced against the relevant party.