Section 309: Mutual credit and set-off

309. Mutual credit and set-off (1) Where there have been mutual credits, mutual debts, or other mutual dealings between a debtor and another person— (a) an account shall be taken of what is due from one party to the other in respect of those credits, debts or dealings; (b) an amount due from one party to the other shall be set off against an amount due from the other party; and (c) only the balance of the account may be proved in a bankruptcy or a liquidation, or is payable to the Official Receiver or liquidator, as the case may be. (2) A person, other than a related person, is not entitled under this section to claim the benefit of a set-off arising from— (a) a transaction made within the specified period, being a transaction by which the person gave credit to the debtor or the debtor gave credit to the person; or (b) the assignment within the specified period to that person of a debt owed by the debtor to another person, unless the person proves that, at the time of the transaction or assignment, the person did not have reason to suspect that the debtor was unable to pay his or its debts as they became due. (3) A related person is not entitled under this section to claim the benefit of a set-off arising from— (a) a transaction made within the restricted period, being a transaction by which the related person gave credit to the debtor or the debtor gave credit to the related person; or (b) the assignment within the restricted period to that person of a debt owed by the debtor to another person, unless the related person proves that, at the time of the transaction or assignment, the related person did not have reason to suspect that the debtor was unable to pay his or its debts as they became due. (4) This section does not apply to an amount paid or payable by a shareholder— (a) as the consideration, or part of the consideration, for the issue of a share; or (b) in satisfaction of a call in respect of an outstanding liability of the shareholder made by the board of directors or by the liquidator. I14 – 167 [Issue 3] Insolvency Act (5) In this section— “related person” means— (a) a related company; and (b) includes a director of a company in liquidation; “restricted period” means the period of 2 years before the date of an adjudication or the commencement of a winding up; “specified period” means the period of 6 months before the date of an adjudication or the commencement of a winding up.