Where under this Part a policy holder is entitled to receive or a company is required to issue a paid-up policy and there is any debt owing to the company under, or secured by, the policy the company may elect—
(a) to treat the debt as a debt secured by the paid-up policy and thereupon the paid-up policy shall be a security for the debt owing to the company; or
(b) in ascertaining the amount of the paid-up policy, to reduce the amount by taking into account upon a basis approved by the Registrar the debt owing to the company and thereupon the debt shall cease to be owing to the company.