Set-off against an insolvent counterparty: who decides what turns on one fact: whether the claim existed and was capable of set-off before the bankruptcy decision was made. The bankruptcy trustee decides in the first instance when settling what the estate owes and what it is owed; a rejection can be tested before the court. Agreement between the parties carries no independent weight once the estate is in bankruptcy.
Who this concerns
This is a live question for any commercial party that both owes money to, and is owed money by, a Swedish company that enters bankruptcy (konkurs) or company reorganisation. Suppliers with running accounts, licensors collecting royalties while owing rebates, lenders inside a group structure, landlords holding deposits against unpaid rent, and contractors with mutual invoices on a single relationship all sit in this situation.
The commercial instinct is to net the two positions and pay or claim only the balance. That instinct is not wrong in principle, but it is not self-executing. Once bankruptcy is declared, the right to set off is no longer a private arrangement between two commercial parties. It becomes a question the trustee has to answer, because netting reduces what is available to every other creditor of the estate.
What the law says
Under Swedish law as it currently stands, set-off against a bankruptcy estate is permitted where three conditions are met together: the claims are mutual, meaning the same two parties hold them against each other in their own right; the claims are of the same kind, ordinarily money against money; and the counterparty's claim against the debtor existed, in substance, before the bankruptcy decision was made. A claim that only becomes due, or only comes into existence, after that moment does not qualify, even if it arises from a contract signed earlier.
The trustee applies this test when finalising the estate's own claim against the counterparty. If the counterparty asserts set-off and the trustee accepts it, the estate's claim is reduced or extinguished to that extent and only the net balance is collected or paid. If the trustee disputes the set-off, the counterparty has to bring the point before the court rather than simply withholding payment.
Where the counterparty, the underlying contract, or the group structure has a foreign element, the mutuality condition is where positions usually fail first. A claim held by a foreign parent company is not the same claim as one held by its Swedish subsidiary, even inside a single accounting relationship or a single intercompany netting agreement. Foreign-law netting or close-out clauses that would operate automatically in another jurisdiction do not override the Swedish mutuality test once a Swedish bankruptcy estate is the counterparty; the claims still have to belong to identical parties under Swedish law for set-off to apply.
How it works in practice
The three-part test the trustee actually applies
The trustee is not assessing fairness or commercial logic. The exercise is narrow: same parties, same kind of claim, and existence before the bankruptcy decision. A counterparty that wants set-off accepted needs to be able to demonstrate each element separately, with dates and documents, rather than assert that the parties "always netted their invoices."
Timing: what "before the bankruptcy" actually means
The relevant moment is the bankruptcy decision itself, not the point the debtor stopped paying, not the point a petition was filed, and not the point trading actually ceased. A claim that crystallises between the petition and the decision, for example a penalty that only becomes payable on a later date, sits in a grey zone that the trustee will scrutinise closely rather than accept at face value.
Contractual set-off and netting clauses
A contract clause providing for set-off does not enlarge what Swedish insolvency law allows. It can help establish that the parties intended their claims to be treated as connected, which is useful evidence, but it cannot substitute for the mutuality and pre-existence conditions. A netting clause drafted under foreign law is read for what it proves about the relationship, not applied as an override.
Set-off in reconstruction versus set-off in bankruptcy
The position during a company reorganisation is not identical to the position in bankruptcy. During reconstruction the debtor continues trading and the estate has not yet been finally administered, so the practical question is usually whether to continue netting going forward under a standstill arrangement negotiated with the reconstructor, rather than whether a past claim qualifies for set-off against a fixed estate. Treating the two situations as interchangeable is a frequent source of error.
Set-off against secured or preferential claims
Set-off works against the general, unsecured position of the estate. It does not convert an otherwise unsecured claim into a secured one, and it does not give the counterparty priority over creditors who hold actual security. A counterparty holding a large unsecured claim cannot use set-off to jump the distribution order; it can only reduce, on both sides, what would otherwise be paid gross.
Group claims and the mutuality problem
Intercompany structures are the most common place this goes wrong. A claim recorded on a group ledger against "the group" is not a claim against the specific bankrupt entity unless the paperwork identifies that entity as the actual party. Where the claim was assigned within the group shortly before the bankruptcy, the trustee will look closely at whether the assignment was designed to manufacture a set-off position rather than reflecting a genuine pre-existing relationship.
Disputed claims: set-off pending litigation
Where the estate's claim against the counterparty is itself disputed, for instance a quality claim on delivered goods, the counterparty can still raise set-off as a defence, but the trustee is entitled to require the underlying dispute to be resolved, or at least assessed, before accepting the net figure. This is one of the more common reasons a straightforward-looking set-off takes longer than either side expected.
What to check before asserting set-off
- The exact date each claim came into existence, not the date it was invoiced or became due
- Whether the same legal entity holds both claims, checking assignments and group restructurings in the period before bankruptcy
- Whether either claim is contingent, disputed, or conditional at the relevant date
- Whether any part of the counterparty's claim is secured or otherwise ranks outside the general estate
- Whether a netting or set-off clause in the contract is governed by Swedish law or by a foreign law
- Whether the claim was assigned, discounted, or otherwise transferred in the months before the bankruptcy decision
- Whether the trustee has already issued a position on the claim, and if so, the deadline for challenging it
The numbers
Swedish insolvency law does not set a fixed threshold, percentage, or minimum claim size for set-off to apply; the test in every case is the mutuality and timing analysis described above, applied to the specific facts. What varies from case to case is not a rate but the maturity date of each claim relative to the bankruptcy decision, and that date is what decides the outcome, not the size of either claim.
Cost follows the same pattern. There is no standard tariff for testing a set-off position, because the work is verification, not calculation: tracing the claim's origin, confirming the identity of the parties, and, where the trustee disputes the position, preparing the argument for the court. A straightforward two-party trading relationship with clean documentation is a different piece of work from a group claim that has been assigned twice in the eighteen months before bankruptcy, and the cost tracks that difference rather than the amount in dispute.
Where it usually goes wrong
The most common failure is assuming an intercompany netting arrangement survives a bankruptcy automatically because it always operated smoothly before. It does not; the mutuality test is applied fresh, entity by entity, at the moment of bankruptcy, regardless of how the group managed its own books.
A second failure is treating the invoice date, or the contract date, as the relevant date for existence of the claim, when the trustee will look instead at when the underlying obligation actually arose. A claim invoiced the week before bankruptcy but arising from an obligation created months earlier is treated differently from one that genuinely came into being that same week.
A third failure is confusing the reconstruction regime with the bankruptcy regime, and assuming that a position agreed informally with a reconstructor will bind a subsequently appointed bankruptcy trustee if the reorganisation fails and the company moves into bankruptcy.
A fourth is missing the deadline to challenge a trustee's rejection of a claimed set-off. Silence after a rejection is read as acceptance of the trustee's position, not as a claim held in reserve.
Finally, counterparties frequently assume that disputing the estate's underlying claim automatically preserves the right to set off against it. It does not: the set-off defence and the underlying dispute are argued together, and a weak position on the underlying claim weakens the set-off argument built on top of it.
What to do next
Does set-off apply automatically once bankruptcy is declared, or does the counterparty have to claim it?
It has to be claimed. The trustee does not net positions on its own initiative; the counterparty has to assert the set-off, with supporting documentation on the mutuality and timing points, when the estate's claim against it is being determined.
Can a claim purchased or assigned shortly before the bankruptcy still be used for set-off?
It can, but the trustee will examine the assignment closely to establish whether it reflects a genuine pre-existing commercial position or was structured specifically to create a set-off that would not otherwise have existed, and will reject the latter.
What happens if the trustee rejects the set-off but the counterparty disagrees?
The counterparty has to bring the point before the court within the deadline the trustee sets; withholding payment on the strength of a rejected set-off, without challenging the rejection formally, generally leaves the counterparty exposed to a separate claim for the full amount.
This material takes the analysis as far as it can go without the underlying claims ledger, the assignment history, and the exact dates on both sides of the relationship. That is document work, not general guidance, and it is the point at which the position stops being self-assessable. For a related step in the same insolvency process, staff and wage claims raised during a reconstruction follow a separate mechanism, covered in wage guarantee for staff during reconstruction. For the broader set of issues this practice covers, see the insolvency and restructuring practice overview. To have a specific set-off position assessed against the actual documents, contact Lodline directly.