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===[[Limited recourse]]=== | ===[[Limited recourse]]=== | ||
Now elsewhere in the wonderful world of structured finance is the secured limited recourse [[espievie]]. | Now elsewhere in the wonderful world of structured finance is the [[Secured, limited recourse obligation|secured limited recourse]] [[espievie]]. | ||
{{quote|{{Repackaging limited recourse capsule}}}} | {{quote|{{Repackaging limited recourse capsule}}}} | ||
Why mention this in an article about voidable | Why mention this in an article about [[voidable preference]]s? 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 ''La Restaurant Cascade de Sécurité'', no reason at all. | ||
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]]''. | But latterly, [[limited recourse]] has slipped its moorings and drifted into the shipping lanes through which ordinary, unsecured asset management vehicles lumber. [[Hedge fund]]s. [[UCITS]]. [[SICAV]]s. An [[investment fund]] [[espievie]] doesn’t usually grant security over its assets at all, and it has a much more dispersed, antagonistic bunch of creditors and, usually, equity holders too. | ||
There’s a ''weak'' justification [[limited recourse]] — to preserve the livelihoods of espievie directors who might otherwise be barred from “running” 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 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 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. | 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. | ||