I think you are into debt recovery territory rather than HB stuff.
You've got £1089.28 of his money but he owes you more than that in relation to another debt.
If you are taking action in relation to that debt in the court then I think it is reasonable to ask the court to decide what should happen to the money you owe him on the other account.
You can also refuse to repay him the £1089.28 because he owes you more than that in rent, he can then make a claim for that to be repaid.
I think you need to seek some advice from your Housing legal bods, as it would not be in his interests to repay him the money and then take arrears recovery action against him that might result in the loss of his home. Hopefully common sense will prevail.
