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

Under the UNCITRAL Legislative Guide on enterprise groups, a court in one group member's insolvency wants to extend liability to another group member that was used to defraud creditors. Which remedy does the Guide describe for such abuse in limited circumstances?

The Guide describes substantive consolidation, treating group members' assets and liabilities as one pool, but only in exceptional circumstances such as fraud, sham entities or hopelessly intermingled affairs, and with safeguards for creditors. It is not an automatic consequence of group insolvency, and separate legal personality remains the general rule.

ASubstantive consolidation, permitted only in exceptional circumstances such as fraud or sham entitiesCorrect
BAutomatic substantive consolidation of every group in insolvency
CReplacing all creditors' claims with equity in the parent
DPermanent stay of all claims against the group

Explanation

The Guide treats substantive consolidation as an exceptional remedy, for cases such as fraud or where assets and liabilities are so intermingled that separation is impractical, with creditor protections. It is not automatic, and the other options are not remedies it describes.

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Under the UNCITRAL Legislative Guide on enterprise groups, a court in one group member's insolvency wants to extend liability to another group member that was used to defraud creditors. Which remedy does the Guide describe for such abuse in limited circumstances?

Explanation

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