Securitization SPV: Its Role as an Insolvency Remote Instrument and the Critical Need for a Special Regulatory Framework

Abstract

This paper aims to develop a comprehensive understanding of the role of a Special Purpose Vehicle (“SPV”) in the realm of a securitization transaction by analyzing the peculiarities of the SPV that have been the subject matter of many controversial legal and financial issues (i.e. the insolvency remoteness). Hence, an examination of the legal concepts underlying bankruptcy remoteness, namely the doctrines of true sale and substantive consolidation, will be conducted. Accordingly, the challenges surrounding the said doctrines will be identified by assessing courts’ holdings on relevant cases, mainly in the United Kingdom (“UK”), with reference to the United States (“US”) jurisdiction. This paper also investigates whether applying the set of standard company laws and regulations to the SPV is legally appropriate. This essay concludes that there is a critical need to develop a special regulatory framework for SPVs to establish clarity and fill the discussed regulatory gaps.