A bankruptcy remote
company
A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...
is a company within a
corporate group
A corporate group, company group or business group, also formally known as a group of companies, is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of gr ...
whose
bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...
has as little economic impact as possible on other entities within the group. A bankruptcy remote company is often a
single-purpose entity, and frequently deployed in the context of mortgage securitizations.
In practice, due to the concept of
limited liability
Limited liability is a legal status in which a person's financial Legal liability, liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company, or joint venture. If a company that provides limi ...
, most companies in developed
legal system
A legal system is a set of legal norms and institutions and processes by which those norms are applied, often within a particular jurisdiction or community. It may also be referred to as a legal order. The comparative study of legal systems is th ...
s will be ''de facto'' bankruptcy remote from other members of the group (except in limited circumstances where
creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some propert ...
s are permitted to
pierce the corporate veil). However, in financial structuring, references to bankruptcy remoteness usually imply additional steps being taken to protect group members from attendant liability, such as by using an
orphan structure to remove the legal ownership of the bankruptcy remote vehicle from the group, whilst retaining the economic benefits of it. Such structures are used where the vehicle's activities may give liability to the group as a whole, for example, under certain
environmental protection
Environmental protection, or environment protection, refers to the taking of measures to protecting the natural environment, prevent pollution and maintain ecological balance. Action may be taken by individuals, advocacy groups and governments. ...
legislation, or in relation to
tax liabilities in certain countries.
References
External links
Special-Purpose Bankruptcy-Remote Entities-
American Bar Association
Remote
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