True sale: Difference between revisions

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-{{a|repack|}}“[[True sale]]” is an accounting concept relating to the disposal of assets under a sale and purchase or other form of [[title transfer]].
+{{a|repack|}}“[[True sale]]” is an accounting concept relating to the sale of assets by outright [[title transfer]].
-The [[true sale]] analysis requires that a person buying an asset has no contractual restrictions on its right to deal with their own property as any legal and beneficial owner would. In particular the ''selling'' party should not be able to control the asset, and should have no right to require its redelivery or future repurchase.
+===Historical purpose: being sure the buyer can keep it===
+The true sale analysis — carried out by a lawyer, though demanded by an accountant — requires the buyer of an asset to take it “unencumbered”: there must be no contractual restrictions on the buyer’s right to do whatever they like with the asset, just as any legal and beneficial owner would. In particular, the seller should not be able to tell the buyer what it can do with the asset, and should have no right to require its redelivery or future repurchase. (There is nothing really to stop the buyer encumbering the asset in favour of someone else, as long as the seller didn’t require that as a condition of the sale.)
 The motivation for this request is simply to support the [[true sale]] analysis and avoid “[[recharacterisation]]” risk.
-This is to ensure that in the vendor’s [[insolvency]] there is no chance of the vendor’s [[liquidator]] challenging the transfer of the asset to the purchasing party on the grounds that it was not a true sale for accounting purposes, and [[recharacterising]] it as a loan or an unperfected pledge or other form of [[security]] which may be treated less favourably in the distribution of insolvency proceeds.
+This is to ensure that in the seller’s [[insolvency]] there is no chance of the seller’s [[liquidator]] challenging the transfer of the asset to the purchasing party on the grounds that it was not a true sale for accounting purposes, and [[recharacterising]] it as a loan or an unperfected pledge or other form of [[security]] which may be treated less favourably in the distribution of insolvency proceeds.
+===Modern purpose: making sure the seller gets rid of it===
-In the [[global financial crisis]] we saw, of course that the opposite was just as true: it wasn’t the purchaser trying desperately to hang on to the diamonds and gemstones bequeathed it by its broker, but to the contrary, the purchaser arriving with a pitchfork mob at the broker’s reception demanding to return the dented, rusting cheapest-to-deliver piece of crap you gave it, and instead to have its money back. In particular, mezzanine tranches of CDOs.
+In the [[global financial crisis]] we saw, of course that the opposite was just as true: it wasn’t the buyer trying desperately to hang on to the diamonds and gemstones bequeathed it by its broker, but to the contrary, the buyer arriving with a pitchfork mob at the broker’s reception demanding to return the dented, rusting cheapest-to-deliver piece of crap you gave it, and instead to have its money back. In particular, mezzanine tranches of CDOs.
 A [[true sale opinion]] is a “[[would-level opinion]]” from a [[law firm]] (ideally a [[magic circle law firm|magic circle]] one) confirming that a disposal or [[title transfer]] of collateral amounts to a [[true sale]]. This may segue into a tedious discussion about the technical legal meaning of the word “[[equivalent]]”.