Question

Which of the following would characterize a special purpose entity as bankruptcy remote?

A. If the sponsoring company goes bankrupt, the assets of the SPE are available to the sponsoring company's creditors.
B. If the sponsoring company goes bankrupt, the assets of the SPE are protected from the creditors of the sponsoring company.
C. If both the sponsoring company and SPE go bankrupt, the assets of the SPE can only be accessed by owners of the SPE.
D. None of the above
E. Only B and C

Answer 1

To characterize a special purpose entity (SPE) as bankruptcy remote, the assets of the SPE must be protected from the creditors of the sponsoring company.

Step-by-step explanation:

To characterize a special purpose entity (SPE) as bankruptcy remote, option B and option C would apply. Option B states that if the sponsoring company goes bankrupt, the assets of the SPE are protected from the creditors of the sponsoring company. This means that the creditors of the sponsoring company cannot access the assets held by the SPE. Option C states that if both the sponsoring company and SPE go bankrupt, the assets of the SPE can only be accessed by the owners of the SPE. Therefore, the assets are not available to the sponsoring company's creditors. Option A is incorrect because it states that if the sponsoring company goes bankrupt, the assets of the SPE are available to the sponsoring company's creditors, which is the opposite of a bankruptcy remote condition.