The Calcutta Cup represents a long and competitive rugby rivalry between the great neighbours that are Scotland and England. Last year, Scotland retained the trophy in a hard-fought match at Twickenham with victory being sealed in the last minute with a try from Duhan van der Merwe who, being 6ft 4 inches, blond and in the peak of physical health, is a fair representation of your average Scotsman.

Ahead of this weekend's match at Murrayfield, we will take an in-depth look at one of the many and important differences between our two great nations. Before jumping to conclusions, we are not going to be looking at national dress or a fondness for large and noisy wind-based instruments. Instead, we are going to examine the legal concept of set-off upon insolvency. 

The position in England (and Wales)

In England (and Wales), the operation of insolvency set-off is expressly set out at rules 14.24 (for administration) and 14.25 (for liquidation) of the Insolvency (England and Wales) Rules 2016. Insolvency set-off is automatic, mandatory and cannot be contracted out of. It occurs when a company goes into liquidation or, in an administration, when notice of intention to distribute is given by the administrator.

The debts which are included within the set-off are any debts (including contingent and future debts) arising out of obligations incurred before certain cut-offs (including, for example, the entry into administration itself, the creditor having notice that a notice of intention to appoint an administrator had been delivered, or the creditor having notice that a winding-up petition was pending). In addition, there must be mutuality: the debts to be set off must be due between the same parties and in the same right (rather like a scrum – unfortunately the English cannot bring in an Irish player to assist, nor the Scots a strapping South African…).

The position in Scotland

In contrast, under Scots law, it may surprise you to learn that the term "set off" has no technical meaning, although it is widely used as an umbrella term for the Scottish equivalents, being compensation, retention and the balancing of accounts upon insolvency. 

Despite this, Scots law has no difficulty with contractual set-off clauses being given effect. It is under the common law position that things begin to diverge from our southern neighbours. 

Retention is the first distinctive feature, which allows a debtor to withhold payment until a claim against the creditor is settled. This is akin to a defensive right and is not contingent upon the mutuality of obligations.

The doctrine of compensation stems from the Compensation Act 1592, fewer than 50 years after the last pitched battle between Scotland and England prior to the Union of the Crowns (let's hope Saturday's result is a less one-sided affair…). Helpfully, the law has barely evolved since. Essentially, a plea of compensation requires that:

• there must be two debts between the same parties in the same capacities; 
• both debts must be liquid and due; and
• compensation must be agreed between the parties, or it must be pleaded and sustained by a court. 

Upon insolvency, the doctrine of the balancing of accounts comes into play, which is effectively a more liberal application of the doctrine of compensation, allowing for Illiquid, future or contingent debts to also be taken into account albeit pre-insolvency debts cannot be set off against post-insolvency debts.

Be careful when crossing the border!

Understanding the differences between set-off under Scots and English law can be as daunting as trying to stop Duhan on a charge. Whilst both legal systems facilitate the efficient resolution of mutual debts, they do so through very different doctrines and principles. If there is one takeaway from this article, however, it is that, unlike in England, set-off (or the Scottish version of the same) is not automatically applied upon an event of insolvency in Scotland. This is something for insolvency practitioners and creditors to be alive to when dealing with multiple cross-border insolvencies.