Voidable preference: Difference between revisions

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 Now elsewhere in the wonderful world of structured finance is the secured limited recourse [[espievie]].
-{{Repackaging limited recourse capsule}}
+{{quote|{{Repackaging limited recourse capsule}}}}
-Why mention this in an article about voidable preferences? Well, as long as you are doing secured, single-issuance deals where every creditor is represented by the [[security trustee]] and has a place reserved at the ''Restaurant Cascade de Sécurité'', no reason at all. But latterly limited recourse has slipped its moorings and drifted into the shipping lanes through which the asset management tankers thunder. An investment fund espievie doesn’t usually grant security and has a much more dispersed, antagonistic bunch of creditors and, usually, equity holders too. There’s a weak reason for requiring limited recourse — to preserve the livelihoods of espievie directors who might otherwise be barred from helming companies due to their reckless trading — but this is a weak reason, and removing it might incentivise the director to actually, you know, supervise the company’s agents to make sure they are conducting themselves with probity. Which is actually what they are paid to do.
+Why mention this in an article about voidable preferences? Well, as long as you are doing secured, single-issuance deals where every creditor is represented by the [[security trustee]] and has a place reserved at the ''Restaurant Cascade de Sécurité'', no reason at all. But latterly limited recourse has slipped its moorings and drifted into the shipping lanes through which the asset management tankers thunder. An investment fund espievie doesn’t usually grant security and has a much more dispersed, antagonistic bunch of creditors and, usually, equity holders too. There’s a weak reason for requiring limited recourse — to preserve the livelihoods of espievie directors who might otherwise be barred from helming companies due to their reckless trading — but this is a weak reason, and removing it might incentivise the director to, you know, supervise the company’s [[agent]]s to make sure they are conducting themselves with probity. Which is, after all, what directors are paid to do.
-And there’s a rather pressing reason to resist limited recourse: creditors, who might otherwise be at each others’ throats, get certain protections from each other should a company go into receivership. Such as protection against [[voidable preference]]s granted to other creditors just before it went ''[[seins en l’air]]''.
+And there’s a rather pressing reason for a creditor to ''resist'' a limitation on its recourse: creditors, who might otherwise be at each others’ throats, are protected from each other when the company go into receivership. Insolvency rules ensure they’re treated fairly. Such as the rules against [[voidable preference]]s a company grants to its favourite creditors just before it goes ''[[seins en l’air]]''.
-How might this happen? Well, imagine a fund that has put on aggressively levered positions with several brokers, without mentioning to any of them that it has doubled down on the trade elsewhere. And imagine that trade suddenly goes, ''[[tango uniform]]'', sending the fund auguring into the side of a hill, and sending dozens of broker legal eagles scurrying for their [[close-out]] manuals. But — oh! — too late. There’s no market for a stock that heavily overshot — that’s what caused the margin call int he first place — Then it transpires the fund had worked with one of the prime brokers to
+How might this happen with a harmless, peace-loving [[espievie]]? Well, imagine a fund that has put on aggressively levered positions with several brokers, without telling any of them that it has doubled down on the trade elsewhere. And imagine that trade suddenly goes, ''[[tango uniform]]'', sending the fund auguring into the side of a hill, and sending the cream of each broker’s legal eaglery scurrying for their [[close-out]] manuals. But — oh! — too late. They all try to sell the same stocks at once, into a market which suddenly has zero appetite to buy that stock, except not “suddenly”, really, since the only person who ever had the appetite for the stock in the first place is exactly the clot whose mammaries are currently pointing heavenward because he bought too much of the stuff — that’s what caused the margin call int he first place.
+Now, saying all that, then it transpires that our now ''[[titten hoch]]'' [[espievie]] got together with one of its brokers on Thursday last week, to close out its positions while all the other brokers were bing good eggs and holding off in the vain hope of being able to engineer an orderly unwind.
+Suddenly those voidable preference rules start to look quite appealing to disappointed brokers.
+Which means that a “[[limited recourse]]” contractual provision, by which those [[broker|brokers]] kindly agreed ''not'' to put the [[espievie]] into [[bankruptcy]] should it go ''[[tette in alto]]'', for the sake of its poor little directors, looks like quite the unfortunate legal term.
 {{Sa}}