The company owes the counterparty for the delivery, and the counterparty has a counter-debt for rent, services or another contract. It is not necessary to transfer equal amounts to each other. Article 601 of the Civil Code of Ukraine allows for the termination of both obligations by offsetting the counter-homogeneous claims. If one amount is larger, the obligations are terminated within the limits of the smaller one, and the balance of the debt is retained.
Set-off should not be confused with a reconciliation act or an agreement on debt forgiveness. This is a separate basis for terminating an obligation and, as a general rule, a unilateral transaction. A statement by one party is sufficient if all the conditions of the law are met and there is no contractual or legislative prohibition.
This is where the main risk arises. The party sends a short letter with the phrase "we are conducting a set-off" and considers the matter closed. In court, it turns out that the deadline for the counterclaim has not yet come, the amount depended on an unsigned act, the debt belonged to another legal entity, or the contract expressly prohibited the set-off. Such a statement does not replace checking the grounds for the debt and evidence.
Four conditions without which enrollment does not work
The first condition concerns countervailing. Each party must be both a creditor and a debtor of the other party. If a company owes a supplier and the founder of that company has a counterclaim against the supplier, the claims are not countervailable. A common owner, a single group of companies or actual control over several legal entities do not combine their obligations. First, there must be a proper legal basis for replacing the creditor or debtor, and only then can the offset be assessed.
The second condition is homogeneity. The most common case in business concerns two monetary claims. They can arise from different contracts: for example, a debt for goods delivered can be compared with a debt for services rendered. The Joint Chamber of the Economic Court of Cassation, in its ruling of January 22, 2021 in case No. 910/11116/19, explained that homogeneity concerns the subject matter of the claims, not the grounds for their occurrence. Therefore, different contracts in themselves do not prevent set-off.
The third condition concerns the term of performance. Claims can be set off if the term has expired, has not been established, or is determined by the moment of presentation of the claim. If payment under the contract is to be made in two months, the creditor cannot terminate this future debt ahead of schedule by unilateral application. First, you need to check the contract, acts, invoices, calendar term, terms of deferral, and events on which the obligation to pay depends.
The fourth condition is of an evidentiary nature. It is necessary to establish the exact amount of both claims as of the date of settlement. Signed acts, invoices, bank statements, letters of acknowledgement of debt and a reconciliation act can confirm the amount. An unsigned unilateral calculation often does not withstand judicial scrutiny, especially when the counterparty disputes the scope of work, the quality of the goods, the accrued fines or the date of the obligation.
These conditions must be checked separately for each claim. A confirmed debt of one party does not eliminate the shortcomings of the counterclaim.
Undisputed debt: why a counterparty's denial alone is not enough
Article 601 of the Civil Code of Ukraine does not directly use the word "uncontested". However, the Supreme Court applies this condition when verifying the set-off. In case No. 910/11116/19, the joint chamber clarified: uncontested means the absence of a dispute regarding the content, terms of performance, and amount of the claims that are set-off. It concerns the claims themselves, not the counterparty's consent to the application.
This difference has practical significance. A counterparty cannot cancel a credit with just a letter of “we disagree.” According to the Supreme Court, the disagreement of one party is not a sufficient basis for the invalidity of a unilateral transaction. The objection must contain a specific legal or factual basis and be supported by evidence. For example, a party can prove that the goods have not been delivered, the act has not been signed, the payment has already been made, the calculation contains an error, or the deadline for performance has not yet come.
Even the presence of another court case on debt collection does not always prove the disputability of the claim. In the resolution of January 22, 2021, the court drew attention to the fact that the mere fact of filing a claim does not refute the debt if its existence and amount are confirmed by documents and are not actually disputed. The court checks not the number of the open proceedings, but the content of the parties' positions and primary evidence.
For the company that makes the transfer, this implies a simple requirement: before sending the application, it is necessary to form an evidentiary case as if the transaction were to be challenged tomorrow. It is necessary to separately confirm the occurrence of each obligation, the term of its fulfillment, the amount on a specific date and the absence of repayment. If one debt is confirmed by a bilateral act, and the other is based only on an internal certificate, the legal risk is not symmetrical.
For the party objecting to the transfer, a general disagreement is also not enough. It is necessary to immediately indicate which condition of Article 601 of the Civil Code of Ukraine has been violated and to preserve the documents confirming this. Such an approach strengthens the position in a future litigation.
How to make an application and confirm its submission
The law does not establish a separate approved form for the application for crediting. However, a short notice without calculation creates an unnecessary dispute. The application should clearly name the parties, contracts and documents from which both claims arose, the terms of their fulfillment, the amounts as of the date of the application and the part in which the obligations are terminated. If one claim is larger, the balance after crediting should be separately indicated.
The wording should express a unilateral transaction that has already been completed, and not a proposal to conclude an agreement in the future. The phrase "we propose to agree on a set-off" indicates negotiations. The phrase about the set-off of specific counter-homogeneous claims under Article 601 of the Civil Code of Ukraine has a different legal meaning. If the parties want to sign a bilateral agreement, this is possible, but then it is necessary to understand what mechanism for terminating obligations they have chosen.
It is advisable to attach the calculation and copies of the main supporting documents to the application. It is especially necessary to check the primary documents carefully if the counterparty has not previously signed the act of work performed. In such a situation, it is useful to first evaluate the evidence of the provision of services without the customer's signature , and not use the offset as a way to hide an unresolved dispute about the debt itself.
The sending of the application must also be confirmed. For a paper document, it is worth saving a description of the attachment, the postal invoice and confirmation of delivery. For electronic correspondence, it is necessary to check the contractual procedure for exchanging messages, the addresses of the parties and the ability to establish the integrity of the document and the authority of the signatory. A qualified electronic signature reduces some of the evidentiary risks, but does not correct the substantive shortcomings of the application.
After the crediting, the accounting data, claims and demands must correspond to the new amount of the debt. If the case is already being considered by the court, it is impossible to hide the crediting. It is necessary to assess the change in the amount of the claims and the procedural actions in the case together with the lawyer who is conducting the contractual dispute.
A copy of the application and the entire package of evidence should be kept together so as not to later restore the chronology from different postal and accounting systems.
When enrollment is prohibited or particularly risky
Article 602 of the Civil Code of Ukraine contains cases in which counterclaims cannot be set off. These include claims for compensation for damage caused by injury, other damage to health or death; collection of alimony; life support; claims in the event of the expiration of the statute of limitations; obligations to which an insolvent bank is a party, except for exceptions established by law. The prohibition may also be contained in another law or in the agreement of the parties.
Before preparing a statement, the contract must be read in its entirety. A clause on payment exclusively in cash does not always automatically mean a prohibition on set-off. The Supreme Court in case No. 910/11116/19 distinguished between the form of payments and the grounds for termination of the obligation: set-off is regulated by Articles 601 and 602 of the Civil Code of Ukraine and differs from performance by payment. At the same time, a direct contractual phrase “set-off of counterclaims is not allowed” or a special legislative prohibition changes the conclusion.
A separate check is required for fines, penalties, inflation losses and three percent per annum. The monetary nature of both claims does not yet prove that their amount is undisputed and the deadline has come. If the penalty depends on the disputed violation or its amount is calculated incorrectly, the unilateral offset may become the subject of a separate lawsuit.
The risk also arises when one of the parties is in insolvency or bankruptcy proceedings. In such cases, special rules apply for satisfying creditors' claims, priority and restrictions on the disposal of property. The usual model of Article 601 of the Civil Code of Ukraine cannot be applied without analyzing the special law and the stage of the procedure.
For taxpayers and participants in regulated markets, a separate tax or industry assessment is also required. The civil law admissibility of the offset does not guarantee the absence of consequences for accounting, taxation or special settlement regime. If mutual debts are significant, it is worth combining the analysis of the contract with a check of industry restrictions before applying.
The decision to credit should be made only after such a check, and not used as an urgent response to a counterparty's claim.
What to do if enrollment is already being contested
The party receiving the statement must first reconstruct the state of the two obligations as of the date of the entry. It is necessary to check the parties to the contracts, the primary documents, the payment term, payments made, adjustments, claims and previous correspondence. An error in one detail does not always determine the outcome of the dispute, but the lack of reciprocity, uniformity or time for performance indicates a violation of the basic conditions.
The objection should be sent quickly, but it should be substantive. If the amount is incorrect, you need to provide your own calculation. If the work is not accepted, you should indicate the reasons and evidence. If the deadline has not passed, you should cite the relevant clause of the contract. If there is a prohibition, you should name the legal norm or contractual provision. It is these circumstances that the court will check when deciding the validity of a unilateral transaction.
The party that made the set-off must show not only the text of the application. It needs evidence of both debts, the onset of deadlines, correct calculation, the authority of the signatory and the sending of the document. If the set-off occurred during an already opened collection case, it should explain to the court how the subject of the debt has changed, and not demand the collection of the already terminated part.
The correct method of protection depends on who has filed a claim with the court and with what claim. This may be a claim for recovery of the remaining debt, a claim for invalidation of a unilateral transaction, or an objection to recovery due to termination of the obligation. Choosing a method of protection without analyzing the procedural situation creates the risk of rejection even if there are reasonable objections on the merits.
Lawyers at "Your Lawyer" can verify both obligations, prepare a statement or reasoned objections, and if necessary, accompany debt collection or a dispute about the validity of the transfer. The best time to verify comes before sending a unilateral statement, when the error can still be corrected without going to court.
If the application has already been submitted, it is also not worth delaying the verification: subsequent payments, accounting records, and claims must be consistent with the chosen legal position.
FAQ
Is the consent of the other party required to offset mutual debts?
As a general rule, no. Article 601 of the Civil Code of Ukraine allows for set-off at the request of one party. Consent is required if it is expressly provided for by the contract, a special law, or the parties have chosen another contractual mechanism.
Is it possible to set off debts under different contracts?
Yes, if the claims are counterclaims, homogeneous, their term has expired and there is no prohibition. For example, two confirmed monetary claims may arise from supply and service contracts.
Does a simple letter of disagreement from the counterparty cancel the crediting?
No. The Supreme Court noted that disagreement alone is not sufficient grounds for invalidating the set-off. The counterparty must identify the violated condition, substantiate the objection, and support it with evidence.
Can a fine or penalty be credited against the principal debt?
The monetary nature of the claims allows for this possibility to be considered, but it is necessary to separately verify the basis, term, and undisputedness of the penalty amount. If the violation or calculation is disputed, the risk of litigation is high.
What happens if one debt is larger than the other?
The smaller obligation is extinguished in its entirety, and the larger only in an equal part. The balance continues to exist and may be paid or collected in accordance with the established procedure.