Special Purpose Vehicles in Bankruptcy Litigation
This Article reports on an investigation of the consequences of a parent corporation’s bankruptcy for its special purpose vehicles (“SPVs”). An SPV is designed under the law to be a bankruptcy-remote investment entity, such that if its parent is forced to file for bankruptcy, the SPV will be evaluated on its independent merits. However, some court decisions hold that an SPV structure may be pierced or legally modified to provide funds to satisfy the creditor and investor claims of its insolvent originator. The court decisions in In re LTV Steel Co., In re Pacific Lumber Co., and In re General Growth Properties Inc. have direct impacts on the attractiveness of an SPV for creditors and investors, and they suggest actions that the originator and the SPV can take to preserve the SPV’s bankruptcy-remote status.