RT Journal Article
SR Electronic
T1 The Importance of Good Corporate Form
JF The Journal of Private Equity
FD Institutional Investor Journals
SP 75
OP 80
DO 10.3905/jpe.2005.490423
VO 8
IS 2
A1 Robert Dehney
A1 Daniel Butz
A1 Curtiz Miller
YR 2005
UL https://pm-research.com/content/8/2/75.abstract
AB Business enterprises regularly face operationally-threatening lawsuits targeting one or more of their products. Businesses, however, may mitigate the damage from these lawsuits by forming separate limited liability entities for each product. If such action is taken and a product becomes a target of lawsuits, the subsidiary formed around said product may file for bankruptcy and the corporate form will enable the enterprise as a whole to limit its loss. The enterprise may, however, still face significant exposure from lawsuits directed at the bankrupt subsidiary because of the prospect of substantive consolidation of non-debtors with a debtor. Unless appropriate steps are taken to protect against it, a court could order that the enterprise's assets be made available for distribution to creditors of the bankrupt subsidiary through substantive consolidation, destroying the value of the enterprise.