Substantive consolidation definition

View the related practice notes about Substantive consolidation

US substantive consolidation

Definition and purposeSubstantive consolidation is an equitable remedy which may be exercised by a bankruptcy court to combine the assets and liabilities of affiliated entities. The substantive consolidation of affiliated debtors is an accepted, if relatively rare, judicial remedy. The aim of substantive consolidation is to address the harms caused by debtors disregarding their separateness and/or otherwise entangling their affairs. The remedy combines the assets and liabilities of different entities and the liabilities are satisfied out of the common pool that results. It is comparable to the non-bankruptcy doctrines of piercing the corporate veil and the alter ego rule. See: In re New Century TRS Holdings Inc. 407 B.R. 576, 591, (D. Del 2009) (not reported by LexisNexis®).Substantive consolidation is an extraordinary remedy because it affects the substantive rights of creditors and equity holders. Substantive consolidation eliminates intercompany claims and alters creditor recoveries because each entity is likely to have a different asset-to-liability ratio. For example, subsidiary A has assets of US$ 100m and liabilities of US$ 200m (50% recovery to creditors); subsidiary B has...

Key features of securitisation and asset based lending

Key features of securitisation and asset based lending Rationale Securitisation involves the sale of large pools of cash-generating assets to a special purpose vehicle (SPV). The SPV pays consideration for the assets, which consideration is generated by issuing interest-bearing securities (also known as 'bonds' or 'notes') into the capital markets. The securities have the benefit of security over those assets and/or the cashflows generated by them (known as 'receivables'). The cashflows from the receivables are used to pay interest and repay principal on the securities. Types of receivables which can be securitised include: • mortgage payments • bank loan repayments • lease/rental payments • credit card repayments • insurance premium payments Benefits of securitisation include: • cheaper borrowing—the SPV may get a better credit rating than the debtor company (originator). Either the obligors for the receivables have a better credit rating than the originator, or credit rating agents may find it easier to rate a single asset (the receivables) as opposed to the originator, which has more...