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Voidable preference: Difference between revisions
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{{quote|{{Repackaging limited recourse capsule}}}} | {{quote|{{Repackaging limited recourse capsule}}}} | ||
=== Repackaging SPVs: an honourable | === Repackaging SPVs: an honourable exception === | ||
[[Repackaging vehicle|Repackaging SPV]]<nowiki/>s are designed to have a strictly limited, identifiable set of creditors all of whom agree that the vehicle should never to go bankrupt, and contractually agree not to put it into [[bankruptcy]], so questions of voidable preference do not arise. | [[Repackaging vehicle|Repackaging SPV]]<nowiki/>s are designed to have a strictly limited, identifiable set of creditors all of whom agree that the vehicle should never to go bankrupt, and contractually agree not to put it into [[bankruptcy]], so questions of voidable preference do not arise. | ||
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. | 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. | ||
Why mention this in an article about [[voidable preference]]s? Well, But [[limited recourse]] has slipped its moorings and drifted into the shipping lanes and intercontinental canals<ref>I am going to resist the temptation to make an Ever Given Suez Canal gag here. Mainly because I can’t think of one.</ref> through which ordinary, unsecured asset management vehicles make their stately passage. [[Hedge fund]]s. [[UCITS]]. [[SICAV]]s. | Why mention this in an article about [[voidable preference]]s? Well, But [[limited recourse]] has slipped its moorings and drifted into the shipping lanes and intercontinental canals<ref>I am going to resist the temptation to make an Ever Given Suez Canal gag here. Mainly because I can’t think of one. And they will soon grow old, and out of date, as we who are left grow old and out of date.</ref> through which ordinary, unsecured asset management vehicles make their stately passage. [[Hedge fund]]s. [[UCITS]]. [[SICAV]]s. | ||
=== Other SPVs should ''not'' be limited in recourse === | === Other SPVs should ''not'' be limited in recourse === | ||
Many other types of [[investment fund]] are also incorporated as [[Orphan ownership|orphan SPVs]]. But these “normal” investment funds don’t usually grant security interests over their assets, and they have a much more dispersed, antagonistic bunch of creditors and equity holders — who are assuredly ''not'' on the same page as each other. They are no different from ordinary [[Limited liability company|LLC]]<nowiki/>s — they ''are'' ordinary [[Limited liability company|LLC]]<nowiki/>s — only with an odd ownership structure. | Many other types of [[investment fund]] are also incorporated as [[Orphan ownership|orphan SPVs]]. But these “normal” investment funds don’t usually grant security interests over their assets, and they have a much more dispersed, antagonistic bunch of creditors and equity holders — who are assuredly ''not'' on the same page as each other. They are no different from ordinary [[Limited liability company|LLC]]<nowiki/>s — they ''are'' ordinary [[Limited liability company|LLC]]<nowiki/>s — only with an odd ownership structure. | ||
There’s a ''weak'' justification to have [[limited recourse]] here: to preserve the livelihoods of the passive [[Special purpose vehicle|SPV]] directors who might otherwise be barred from holding directorships if the vehicles they nominally manage go ''[[βυζιά πάνω]]''. They have delegated away most of their executive function to the investment manager: they just sit in the Cayman Islands snorkelling, cheating on each others’ spouses and holding the odd board meeting but otherwise having nothing to do with the day-to-day management of the fund. But this ''is'' a weak reason. Removing it might incentivise the fund directors to, you know, ''do their jobs'' and properly supervise the company’s [[agent]]s to make sure they are conducting themselves with probity and competence, so that the fund ''doesn’t'' go bankrupt. | There’s a ''weak'' justification to have [[limited recourse]] here: to preserve the livelihoods of the passive [[Special purpose vehicle|SPV]] directors who might otherwise be barred from holding directorships if the vehicles they nominally manage go ''[[βυζιά πάνω]]''. They have delegated away most of their executive function to the investment manager: they just sit in the Cayman Islands snorkelling, cheating on each others’ spouses and holding the odd board meeting but otherwise having nothing to do with the day-to-day management of the fund. But this ''is'' a weak reason. Removing it might incentivise the fund directors to, you know, ''do their jobs'' and properly supervise the company’s [[agent]]s to make sure they are conducting themselves with probity and competence, so that the fund ''doesn’t'' go bankrupt. | ||
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The brokers consult with their legal eagles, who stumble across a “[[limited recourse]]” provision, by which those [[broker|brokers]] kindly agreed ''not'' to put the [[espievie|fund]] into [[bankruptcy]] should it go ''[[tette in alto]]'', for the sake of its poor little directors. | The brokers consult with their legal eagles, who stumble across a “[[limited recourse]]” provision, by which those [[broker|brokers]] kindly agreed ''not'' to put the [[espievie|fund]] into [[bankruptcy]] should it go ''[[tette in alto]]'', for the sake of its poor little directors. | ||
But if you can’t bankrupt the fund, it can’t have ''made'' a voidable preference, because voidable preferences only ''exist'' in situations of insolvency. The fund is cleaned out, ''but it isn’t insolvent''. The | But if you can’t bankrupt the fund, it can’t have ''made'' a voidable preference, because voidable preferences only ''exist'' in situations of insolvency. The fund is cleaned out, ''but it isn’t insolvent''. The brokers’ [[debt]]<nowiki/>s are extinguished. They have no further claim. They have no way of alleging that there has been a voidable preference, because they can’t put the fund into bankruptcy to establish one. | ||
Suddenly this little concession to preserve the livelihoods of SPV directors looks like quite the unfortunate legal term. | Suddenly this little concession to preserve the livelihoods of SPV directors looks like quite the unfortunate legal term. | ||