CS Professional · Insolvency and Bankruptcy - Law and Practice · Group Insolvency

In a group of three insolvent companies, a tribunal pools all assets and liabilities, treats intra-group claims as extinguished, and lets creditors of all three share in one common pool. What is the principal effect on a creditor who lent only to the strongest company of the group?

The creditor's claim ranks against the pooled estate, so it may recover less than from the strong company alone. Substantive consolidation merges assets and liabilities of all group entities, so creditors of the stronger entity share with creditors of weaker ones, which is why it is granted only sparingly.

1. AIts claim is unaffected because each company's estate stays separate
2. BIts claim ranks against a pooled estate, so it may recover less than it would from the strong company aloneCorrect
3. CIts claim is automatically converted into equity of the group
4. DIts claim becomes an operational debt