Bankruptcy-remote transactions and bankruptcy law—a comparative approach (part 1): changing the focus on vehicle shielding

Conventional wisdom about bankruptcy-remote transactions tends to be grounded on two assumptions. First, bankruptcy-remote transactions are a highly specific, and borderline case, of anecdotal relevance for bankruptcy policy. Second, bankruptcy-remote transactions are either a welcome or dangerous innovation, with little scope for nuances. This article tries to examine the relationship of bankruptcy-remote transactions and bankruptcy policy in a new light, using precedent and scholarly analysis from different jurisdictions. First, the article establishes the different ideas encompassed by the concept of ‘bankruptcy- remoteness’, and puts bankruptcy-remote structures in the broader context of bankruptcy policy. Second, the article uses the ‘vehicle-shielding’ concept of bankruptcy-remoteness and tests traditional legal threats such as avoidance, re-characterization or substantive consolidation, seeing whether their academic importance from an academic perspective is matched by their relevance as a threat in practice. Third, the article analyses the instances where vehicle shielding has actually been, or can be, put in jeopardy, and the reasons for it. The article concludes that bankruptcy-remote transactions should cease to be considered a marginal case for bankruptcy law. Rather, the tensions between different goals, at the core of bankruptcy policy, are very present in the context of these transactions, only such tensions materialize in ways different from that those originally envisaged. Academic analysis should adjust to this complex reality, rather than the opposite.