A Guide to the Law of Securitisation in Australia - Clayton Utz

Contractual set-offA customer will only have a contractual right of set-off if this isprovided in the relevant loan or deposit account documentation.In our experience this is rarely the case.Insolvency set-offInsolvency set-off will only be relevant in these circumstancesupon the insolvency of the customer or the ADI. In either case theother forms of set-off will cease to apply and, since there will beno mutuality between the customer’s rights under the depositaccount (against the ADI) and its obligations under the loan (tothe special purpose vehicle) at the time of the insolvency,insolvency set-off will not be permitted.8.9 ConclusionIn the early days of securitisations by ADIs in Australia, therewas considerable concern that set-off could lead to the resultthat a special purpose vehicle’s assets were not insulated fromthe ADI’s insolvency. As the industry worked through the complexrules regarding set-off it became clear that this is not the casewhere the underlying loan documents contain a waiver by theborrower of its set-off rights. This conclusion is particularlyimportant as it enables securitisations by ADIs to proceed inAustralia without the necessity for reserves to be established tocompensate for any set-off risk.51