Bankruptcy remoteness

To raise funds to purchase these receivables, the SPV issues securities in the capital markets. The SPV, however, must be structured as "bankruptcy remote" to gain acceptance as an issuer of capital market securities. Bankruptcy remote in this context means that the SPV is unlikely to be adversely affected by a bankruptcy of the originator. ... 

To achieve bankruptcy remoteness, the SPV s organizational structure strictly limits its permitted business activities. The goal is to prevent creditors (other than holders of the SPV s securities) from having claims against the SPV... 

The rating agencies also consider the strength of the originator, the bankruptcy remoteness of the stmcture, and the experience and capability of the conduit s administrator and servicer. 

See Schwarcz, Divisible Interests, supra note 34, at 149. The divisible interest structure eliminates the need for a bankruptcy remote subsidiary, and thereby permits multiple originators to obtain economies of scale by pooling their receivables in a single securitization transaction. As a practical matter, however, the use of these innovative structures, which raise issues of first impression in the absence of case law directly on point, may be limited to private placements with sophisticated investors until there are sufficient precedents decided or until a sufficient number of transactions are done so as to create investor and rating agency comfort. 

Their bankruptcy remoteness is greatly enhanced through one of the most reassuring features of the French law and that is its specific exclusion of the SCF from any bankruptcy proceedings initiated at the level of its parent(s). The SCF is therefore less vulnerable to the default of its parent credit institution. 

In a securitisation structure, a bankruptcy remote SPV uses the proceeds of the debt issue to acquire the properties. It then leases them back to the seller for a term that will equal or exceed the tenor of the debt issue. Lease payments will service the debt in one of various ways The debt may be fully amortised over the term (although this gives rise to a significant tax mismatch) the debt may be partially amortised, which requires refinancing or a sale of the property to ensure repayment of the debt at maturity or the issue size may be increased to fund the purchase of a zero coupon bond to repay the principal at maturity. A typical structure is illustrated in Exhibit 12.4. 

The originator of the transaction establishes a bankruptcy-remote legal entity known as a special purpose vehicle (SPV) that is the formal issuer of the notes. 

The issuer of the bonds under a traditional CDO or ABS structure or of credit-linked notes in a synthetic funded structure is a special purpose vehicle (SPY). The structure relies on the fact that such SPY is bankruptcy remote, that is, the entity is unlikely to become subject to bankruptcy proceedings or claims by other investors. For these purposes, the constitutional documents of the SPY usually prohibit any merger, or consolidation, the SPY is prohibited from engaging in business other than those directly related to the transaction and is restricted from incurring any additional debt. 

Before the deal is closed, the SPVs incorporation documents are also reviewed, to ensure that it is bankruptcy remote and established in a tax-neutral jurisdiction. 

Schwartz, Alan. 1985. Products Liability, Corporate Structure, and Bankruptcy Toxic Substances and the Remote Risk Relationship. Journal of Legal Studies 14 689-750. Shabecoff, Philip. 1989. 3 U.S. Agencies, to AUay Public s Fears, Declare Apples Safe. New York Times (March 17) A16. 

The potential closure of independent community pharmacies in rural and remote areas, mentioned above, may clearly reduce access. The Pharmaceutical Society of South Africa opposed the SEP regulations and the dispensing fees on the basis that they threatened the viability of independent community pharmacy. Since the early court challenges, there have been widespread reports that some community pharmacies did go into bankruptcy. The Pharmaceutical Society of South Africa reports that many small town and rural pharmacies have closed (PSSA, 2014) negatively affecting access. Dodd (2007) demonstrated that independent pharmacies saw net profits fall, that the price controls could push some pharmacies into bankruptcy and that closure of pharmacies in remote and rural areas would render the distribution of medicines economically unviable and thus affect access. 

Richard A. Epstein, Products Liability as an Insurance Market, 14 J. Legal Studies 645 (1985) George L. Priest Richard A. Epstein, Introduction, 14 J. Legal Studies 459 (1985) George L. Priest, The Invention of Enterprise Liability A Critical History of the Intellectual Foundations of Modem Tort Law, 14 J. Legal Studies 461, 462-63 (1985) Alan Schwartz, Products Liability, Corporate Structure, and Bankruptcy Toxic Substances and the Remote Relationship, 14 J. Legal Studies 689 (1985). 

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