Mexican Legal Framework of Business Insolvency - White & Case

Netting of obligations in light of concurso raises an important policy issue: A balance
should be struck between the benefits of netting (commercial predictability, reduction of
the scope of the estate and mitigation of systemic risk) and affording a privilege to some
creditors not otherwise available to others. IMF (1999) provides an insightful analysis of
this policy issue:
An important issue that arises in the design of an insolvency law is the treatment of a creditor
who, at the time of the initiation of the liquidation proceedings, also happens to be a debtor to
the estate. If the fundamental principle of equality of treatment of similarly situated creditors
were applied, the outcome would be relatively straightforward: The liquidator should be able to
receive the full amount owed by the creditor and the creditor’s claim would be satisfied to the
extent to which all other unsecured creditors get satisfied upon the liquidation of the estate.
However, an alternative approach permits the creditor, in these circumstances, to exercise
set-off rights against the estate after liquidation is initiated, with the effect that, depending on
the size of the estate’s claim on the creditor, the creditor’s claim may be satisfied in full.
There are several reasons why it may be appropriate to include the right of set-off in an
insolvency law. The first is that of fairness: notwithstanding the importance of equality of
treatment among creditors, it is considered unfair for a debtor to refuse to make payment
to a creditor but, at the same time, to insist upon payment from that creditor. In addition,
since many counterparties are banks, the right of set-off is particularly beneficial to the
banking system and, because of the important credit creation role of banks, is therefore
considered to be of general benefit to the economy. By virtue of their core functions
(lending and deposit taking), banks that have lent to an entity that has gone bankrupt will
often find that they have financial obligations to the debtor in the form of deposits. A postcommencement
right of set-off would allow the banks to offset their unpaid claims with
the debtor’s deposits even though these reciprocal claims are not yet due and payable.
Even among countries that do not provide for a general right of set-off in the context of
insolvency, set-off will still normally be permitted in two circumstances: if both claims are mature
at the time insolvency takes place, or if the mutual claims arise from the same transactions.
The Insolvency Law has taken the approach of allowing netting in specific cases
provided therein. However, the cases in which netting is allowed are relatively broad.
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