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In the context of [[Special purpose vehicle|special purpose vehicles]], [[bankruptcy remoteness]] means that the vehicle, contractually, ''can’t be made [[bankrupt]] at all'' - all the contractual claims against it are [[limited recourse|limited in recourse]] to the liquidated value of its assets. {{tag|Contract}}s therefore purport to extinguish any debt that otherwise would be due once the assets of the company have been liquidated and distributed. | {{a|repack|}}In the context of [[Special purpose vehicle|special purpose vehicles]], [[bankruptcy remoteness]] means that the vehicle, contractually, ''can’t be made [[bankrupt]] at all'' - all the contractual claims against it are [[limited recourse|limited in recourse]] to the liquidated value of its assets. {{tag|Contract}}s therefore purport to extinguish any debt that otherwise would be due once the assets of the company have been liquidated and distributed. | ||
This means that a creditor claim cannot exceed the [[balance-sheet]] value of the company’s assets and it therefore cannot, mathematically, become [[Balance sheet insolvency|balance-sheet insolvent]]: no {{tag|creditor}} is ever in a position to petition a court for the winding up of the entity. | This means that a creditor claim cannot exceed the [[balance-sheet]] value of the company’s assets and it therefore cannot, mathematically, become [[Balance sheet insolvency|balance-sheet insolvent]]: no {{tag|creditor}} is ever in a position to petition a court for the winding up of the entity. | ||
This is important because the directors of {{tag|SPV}}s are usually directors of many different entities, and they can’t afford to be associated with the implied breach of directors' duties that would be represented by allowing a company to trade while insolvent (which may lead to their regulatory disqualification to act as directors of any company.) This is different from the isolation of claims between [[Affiliate|affiliated]] entities: that is a function of the [[corporate veil]], and not what is usually meant (in the industry) by “[[bankruptcy remoteness]]”. | This is important because the directors of {{tag|SPV}}s are usually directors of many different entities, and they can’t afford to be associated with the implied breach of directors' duties that would be represented by allowing a company to trade while insolvent (which may lead to their regulatory disqualification to act as directors of any company.) This is different from the isolation of claims between [[Affiliate|affiliated]] entities: that is a function of the [[corporate veil]], and not what is usually meant (in the industry) by “[[bankruptcy remoteness]]”. |