UK Law and Practice Contributed by: Guy O’Keefe, Richard Jones, Oliver Wicker and Kate Patane, Slaughter and May
the securitisation and are not employees of the originator. English courts do not recognise the doctrine of substantive consolidation. 6.3 Transfer of Financial Assets The transfer of receivables by way of equitable assignment (see 3.3 Principal Perfection Provi- sions ) results in the SPE acquiring an equitable interest in such receivables and a right to the benefit of collections relating to such receiva - bles. In the ordinary course, the transfer of receivables will not be notified to the underlying customers – instead, the originator will maintain its cus - tomer relationships and the servicer will collect amounts in the name of the originator. The servicer will typically hold any collections received on trust for the securitisation struc - ture before paying such amounts to the secu - ritisation. Such a trust is intended to put such amounts beyond the reach of the servicer or the originator’s other creditors. It is important to ensure that trust funds are not co-mingled with funds not held on trust, and to ensure that any collection account bank is notified that amounts held in the relevant account are held on trust. Under certain circumstances, such as the insol - vency of the originator, it is usual that the equi - table assignment of receivables will be perfected into a legal assignment by notifying the underly - ing obligors of the sale of receivables – see 3.3 Principal Perfection Provisions for a description of perfection. It is common for legal analysis to be undertaken to confirm that the transfer of receivables oper - ates by way of a sale and is not readily recharac -
terisable as security. It is customary for counsel for the banks/investors to deliver a formal, rea - soned legal opinion to this effect. Counsel will typically look to ensure that: • receivables are transferred in exchange for a price that is calculated by reference to the face value of the receivables; • the SPE has a right to both interest and prin - cipal receipts relating to the receivables; and • the originator has only limited rights to repur - chase receivables from the SPE. 6.4 Construction of Bankruptcy-Remote Transactions It is also possible to use a trust instead of a “true sale” of assets. In this less common structure, the originator would declare a trust over its rights under the assets, with the SPE as the beneficiary. Whilst this achieves bankruptcy-remoteness, it is uncommon in practice. In addition, it is inherent in a synthetic securitisa - tion that investors’ liability is tied to performance of the portfolio of reference assets, rather than the originator. 6.5 Bankruptcy-Remote SPE Securitisation documents will always include specific provisions to protect the SPE from insol - vency. One key measure is the “limited recourse” provision, which ensures that the investors can only claim against the secured assets of the SPE, and not beyond that for any shortfall. Another safeguard is the “non-petition” clause, where the investors agree not to petition for the insolvency of the SPE. This prevents the inves - tors from forcing the SPE into insolvency pro - ceedings, thereby allowing the securitisation structure to remain intact and cash flows to be distributed by way of the prescribed cash flow
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