Bankruptcy remote

In the context of 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 in recourse to the liquidated value of its assets. Contracts 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 insolvent: no creditor is ever in a position to petition a court for the winding up of the entity.

This is important because the directors of SPVs 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 affiliated entities: that is a function of the corporate veil, and not what is usually meant (in the industry) by “bankruptcy remoteness”.