Imagine Company A owes Company B $100k, and B owes A $50k.
You’d expect the two companies could just set-off those debts so that A only had to pay $50k.
However, what happens if B goes into Liquidation before A exercises its right to set-off?
Further imagine that bank (“C”) is a secured creditor, having properly registered its AllPAAP on the #PPSA.
This is similar to the recent case of Re Hamersley Iron v Forge Group  WASC 152.
It’s long, and at times difficult to follow, but the gist of the case (similar to the above scenario, but think $100’s of millions) is that:
– the right to set-off is codified by s553C Corporations Act (no contractual or equitable set-off could subsist);
– (lawyer jargon) crystalisation does not exist under the PPSA, as the purpose of s19(2) PPSA grants C a proprietary interest in the collateral; and
– any mutuality of interest between A and B was lost following the attachment of C’s AllPAAP.
To sum up, this means that A could not set-off its debts with B, because of the AllPAAP and also because A had not exercised its contractual right to set-off before B went into external administration.