Insolvency Set-Off, Discharged Debts and Protected Trust Deeds: Royal Bank of Scotland Plc v Donnelly

For the second time in recent years, a significant case on payment protection insurance (“PPI”) and protected trust deeds has come before the courts.1 In Dooneen Ltd v Mond (“Dooneen”),2 the UK Supreme Court held that a discharged debtor, rather than the trustee, was entitled to receive PPI compensation that was due to the debtor but unknown to the trustee when a “final distribution” of the estate was made.3 Royal Bank of Scotland Plc v Donnelly (“Donnelly”)4 involves similar facts, but focuses on the different question of whether insolvency set-off5 can be utilised by a bank to resist or limit a PPI claim by a discharged debtor. The Inner House's refusal to allow insolvency set-off may be correct, but there are scenarios not too far removed from that in Donnelly in which the result could be different, and it might be asked whether, like the outcome in Dooneen itself, the outcome is “scarcely…satisfactory”.6 In addition, related litigation involving the potential reduction of the debtor's discharge raises further issues of interest.