Balancing of Counterclaims as a Legal Construction Similar to Set-off

Abstract

This article examines the application of set-off under Article 410 of the Civil Code of the Russian Federation within bankruptcy procedures, highlighting the limitations imposed by proportionality and claims priority rules. These restrictions often conflict with economic feasibility, leading to the emergence of a legal construction known as the balancing of counterclaims in judicial practice. Although balancing of counterclaims functions similarly to set-off, it circumvents the statutory limitations traditionally applied to set-off. Despite its practical utility in addressing set-off admissibility issues in bankruptcy, the concept lacks proper legal justification. This article explores the legal nature of balancing counterclaims, its distinctions from set-off, and its criteria and application procedures. The article begins by examining the historical evolution of balancing counterclaims and the rationale behind their distinct terminology. A comparative analysis with set-off under Article 410 of the Civil Code is conducted, focusing on the grounds for obligations termination, purpose, scope, and procedural applications. Key differences between the two concepts are in their goal and limited application scope, allowing balancing counterclaims to operate beyond the proportionality and claim priority constraints. Additionally, the article delves into potential penalties and the security functions associated with balancing counterclaims. In conclusion, balancing counterclaims can be best understood either as a legal construct derived from traditional set-off principles or as a criterion for determining transaction admissibility, including set-off, within bankruptcy contexts.