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Orphan structure

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73:. If the asset users, or the asset lenders, owned (or legally controlled) the SPV equity, then the SPV would be consolidated into their group accounts. This is something that the lenders to the SPV have to avoid as they are mostly banks and only want to give in loans. Users of the asset may want to avoid if their borrowing limits may have been reached (or they want a regulatory/liability firewall between themselves and the asset(s)). 630: 408: 134:. The SPV lenders will want to ensure their securitisation vehicle is prevented from entering into a bankruptcy process thus losing control over the assets for an extended period, due to financial failings of the asset user(s), or the 3rd party equity owner itself. The lenders will want to take immediate control of the assets if a user(s) goes bankrupt 422: 149:
Often only a small number of shares are created for a nominal sum (the exact specific amounts depending on the specifics of the jurisdiction) as the "equity" of the SPV. These shares are then independently purchased by the 3rd party entity in question using their own funds to complete the purchase
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Conflicts/Control. The 3rd party must not be capable of damaging or attacking the SPV, taking a biased view on behalf of one party (i.e. lender or user) outside of the written agreements created on establishing the SPV, or even acting in a completely rogue manner, that would harm the interests of
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market is large (circa US$ 10 trillion in assets) and involves multinationals getting assets financed by global banks structured in SPVs created by global law and accounting firms. The orphaned SPV structures they use are understood and accepted in many jurisdictions, by regulators and taxing
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Tax Integrity. The 3rd party must be credible, and legally separate from all other parties in the SPV, that the various national taxing authorities won't challenge the SPV under general anti-avoidance rules, and effectively force it back "on-balance sheet", rendering the SPV useless to the
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Orphaned SPV structures allow lenders to separate the asset finance, from the asset user(s), thus enabling them to move the asset to other users(s) should the situation arise (e.g. bankruptcy of a user), without having to recreate a new SPV and/or reraise new loans.
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due to their particular robustness to avoiding bankruptcy (not legally possible for it to enter a bankruptcy process), however, this had led to some public concerns over the integrity of the overall orphaned SPV structure (e.g.
346: 62:(the asset user(s), and the lender(s) financing the assets). While this 3rd party legally "owns" the equity of the SPV, the way in which their ownership is structured gives them no control over the SPV. 478: 46:
of the SPV is deliberately handed over to an unconnected 3rd party who themselves have no control over the SPV; thus the SPV becomes an "orphan" whose equity is controlled by no one.
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Given the above, the orphaned SPV equity is usually held by a nominee share trustee company on trust pursuant to a Declaration of Trust (and never via an individual).
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Unfortunately, the global acceptance of the main orphaned SPV structures has attracted the attention of users who are not seeking to conduct standard tax-transparent
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Specialist law firms provide such trust services (can often be a subsidiary of the law firm advising on the main SPV and/or securitisation transaction).
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The SPV is generally a limited liability company issued in either an offshore location (e.g. the Cayman Islands SPV) or an onshore location (e.g.
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via orphaned SPVs, is a classic abuse of orphaning. This is why orphaning is not available in all jurisdictions, and where it is offered in non-
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transactions, but who have other aims and objectives which regulators and tax authorities did not envisage orphaned SPVs being used for.
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Ireland is the largest EU location for orphaned SPVs, and the above abuses have drawn warnings from the former Deputy Governor of the
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An orphaned SPV is, by definition, an artificial creation as everybody knows who "controls" the SPV. There are instances outside of
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The key considerations in deciding what 3rd party entities are used to "own" the orphaned SPV equity are driven by:
669: 228:, showed Russian financial entities were using the anonymity of orphaning, as well as the inherent complexity of 588: 784: 778: 760: 423:"Vulture funds using Matheson Law Firm in-house charities to avoid paying Irish tax, says TD Stephen Donnelly" 391: 662: 701: 219:
were closed by the Irish Government, material amounts of tax revenues were lost to the Irish exchequer.
107:(i.e. where there are domestic taxes), it is strictly controlled and monitored by taxing authorities. 816: 95:
where orphaned SPVs, and the ability to separate "true" owners from "legal" owners, can be used for
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is held by a 3rd party with no legal relationship to the two main parties engaging in the
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transactions, to circumvent various international sanctions in moving money globally.
154: 131: 70: 99:. For example, restructuring equity into debt, and then relocating this debt to a 55: 43: 204: 451:"Stephen Donnelly Welcomes Charity Regulator Clampdown on Section 110 Charities" 693: 229: 196: 189: 184: 92: 85: 81: 66: 59: 39: 810: 253: 166: 96: 510:"Orphan structures: holding companies accountable when owners don't exist" 437:"Irish Charities Regulator rejects Matheson Charities in Section 110 SPVs" 104: 654: 558:"NAMA forced to pay €160m tax bill after Section 110 loophole closed" 216: 100: 409:"Law Firm Matheson Uses Irish Charities to help Hedge Funds cut tax" 711: 577:. Professor Jim Stewart Trinity College Dublin. 27 February 2018. 631:"Former Regulator says Irish politicians mindless of IFSC risks" 88:
SPVs would cease to be useful or effective to their creators.
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Irish Section 110 Special Purpose Vehicle (SPV) § Abuses
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In 2017–2018, academic research by Professor Jim Stewart in
603:"More than €100bn in Russian Money funneled through Dublin" 378:"Orphan structures – bankruptcy remoteness under Irish law" 169:
is emerging as a preferred option in some jurisdictions.
645:"Irish SPVs more a worry for other countries than State" 544:"Loophole lets firms earning millions pay €250 in Tax" 525:"Ireland confronts another tax scandal closer to home" 589:"How Russian Firms Funnelled €100bn through Dublin" 188:authorities as vehicles in which to conduct global 150:(cannot be paid for directly by the main parties). 523: 162:in Ireland), and has now been stopped in Ireland. 808: 16:Legal entity where the equity is owned by no-one 617:"Ireland is top Eurozone jurisdiction for SPVs" 670: 211:, to buy Irish distressed assets during the 572:"Global Finance and the Russian Connection" 465:"Non-charitable purpose trusts in Guernsey" 677: 663: 84:transactions, and without orphaning, most 65:The driver for orphaning is to enable the 591:. The Sunday Business Post. 4 March 2018. 560:. The Irish Independent. 2 February 2017. 296:"Cayman Islands Orphan SPVs in Shipping" 34:closely associated with creating SPVs (" 809: 684: 528:. Financial Times. 11 September 2016. 484:. Morgan Stanley. 2017. Archived from 215:to avoid Irish taxes. By the time the 658: 619:. Irish Independent. 19 August 2017. 512:. Open Global Rights. 2 August 2017. 80:Orphaning is at the heart of global 647:. The Irish Times. 13 January 2017. 609: 207:funds used orphaned SPVs, known as 203:In 2016, it was discovered that US 13: 767:Collateralized mortgage obligation 352:. Arthur Cox. 2014. Archived from 14: 838: 318:. Grant Thornton. September 2015. 279:"Creating and Understanding SPVs" 633:. The Irish Times. 5 March 2018. 605:. The Irish Times. 4 March 2018. 532:from the original on 2022-12-11. 330:"Cayman Islands Securitisations" 42:transactions where the notional 637: 623: 595: 581: 564: 550: 546:. The Irish Times. 6 July 2017. 536: 516: 502: 471: 457: 443: 429: 785:Collateralized fund obligation 779:Collateralized loan obligation 773:Collateralized bond obligation 761:Collateralized debt obligation 479:"Global Securitisation Market" 415: 411:. Irish Times. 27 August 2015. 401: 384: 370: 347:"Establishing SPVs in Ireland" 339: 322: 305: 288: 271: 49: 1: 453:. Fianna Fail. 27 April 2017. 439:. Irish Times. 28 April 2017. 335:. Conyers Dill Pearman. 2016. 264: 153:Some jurisdictions have used 425:. Irish Times. 14 July 2016. 167:Non-Charitable Purpose Trust 138:the main parties in the SPV. 7: 242: 10: 843: 702:Securitization transaction 380:. Global Law Office. 2017. 176: 730: 692: 172: 110: 827:Types of business entity 744:Mortgage-backed security 301:. Walkers. January 2017. 54:In an orphaned SPV, the 36:Special Purpose Vehicles 238:Central Bank of Ireland 69:transaction to be held 392:"Jersey Orphaned SPVs" 249:Irish Section 110 SPVs 226:Trinity College Dublin 213:Irish financial crisis 738:Asset-backed security 397:. Hatstone Law. 2014. 259:Bankruptcy Remoteness 132:Bankruptcy Remoteness 117:Irish Section 110 SPV 791:Senior stretch loan 755:Credit default swap 731:Types of securities 796:Structured product 707:Credit enhancement 686:Structured finance 32:structured finance 30:are terms used in 804: 803: 750:Credit derivative 467:. Lexology. 2014. 155:Charitable Trusts 71:off-balance sheet 834: 817:Offshore finance 717:Orphan structure 679: 672: 665: 656: 655: 649: 648: 641: 635: 634: 627: 621: 620: 613: 607: 606: 599: 593: 592: 585: 579: 578: 576: 568: 562: 561: 554: 548: 547: 540: 534: 533: 527: 520: 514: 513: 506: 500: 499: 497: 496: 490: 483: 475: 469: 468: 461: 455: 454: 447: 441: 440: 433: 427: 426: 419: 413: 412: 405: 399: 398: 396: 388: 382: 381: 374: 368: 367: 365: 364: 358: 351: 343: 337: 336: 334: 326: 320: 319: 317: 309: 303: 302: 300: 292: 286: 285: 283: 275: 209:Section 110 SPVs 20:Orphan structure 842: 841: 837: 836: 835: 833: 832: 831: 807: 806: 805: 800: 726: 688: 683: 653: 652: 643: 642: 638: 629: 628: 624: 615: 614: 610: 601: 600: 596: 587: 586: 582: 574: 570: 569: 565: 556: 555: 551: 542: 541: 537: 522: 521: 517: 508: 507: 503: 494: 492: 488: 481: 477: 476: 472: 463: 462: 458: 449: 448: 444: 435: 434: 430: 421: 420: 416: 407: 406: 402: 394: 390: 389: 385: 376: 375: 371: 362: 360: 356: 349: 345: 344: 340: 332: 328: 327: 323: 315: 311: 310: 306: 298: 294: 293: 289: 281: 277: 276: 272: 267: 245: 205:distressed debt 181: 175: 141: 113: 93:securitisations 52: 17: 12: 11: 5: 840: 830: 829: 824: 822:Legal entities 819: 802: 801: 799: 798: 793: 788: 782: 776: 770: 764: 758: 752: 747: 741: 734: 732: 728: 727: 725: 724: 719: 714: 709: 704: 698: 696: 694:Securitization 690: 689: 682: 681: 674: 667: 659: 651: 650: 636: 622: 608: 594: 580: 563: 549: 535: 515: 501: 470: 456: 442: 428: 414: 400: 383: 369: 338: 321: 313:"SPV Taxation" 304: 287: 269: 268: 266: 263: 262: 261: 256: 254:Purpose Trusts 251: 244: 241: 234: 233: 230:securitisation 221: 220: 197:securitisation 192:transactions. 190:securitisation 185:securitisation 174: 171: 140: 139: 135: 129: 124: 112: 109: 86:securitisation 82:securitisation 67:securitisation 60:securitisation 51: 48: 40:securitisation 15: 9: 6: 4: 3: 2: 839: 828: 825: 823: 820: 818: 815: 814: 812: 797: 794: 792: 789: 786: 783: 780: 777: 774: 771: 768: 765: 762: 759: 756: 753: 751: 748: 745: 742: 739: 736: 735: 733: 729: 723: 722:Shell company 720: 718: 715: 713: 710: 708: 705: 703: 700: 699: 697: 695: 691: 687: 680: 675: 673: 668: 666: 661: 660: 657: 646: 640: 632: 626: 618: 612: 604: 598: 590: 584: 573: 567: 559: 553: 545: 539: 531: 526: 519: 511: 505: 491:on 2018-03-17 487: 480: 474: 466: 460: 452: 446: 438: 432: 424: 418: 410: 404: 393: 387: 379: 373: 359:on 2018-03-16 355: 348: 342: 331: 325: 314: 308: 297: 291: 280: 274: 270: 260: 257: 255: 252: 250: 247: 246: 240: 239: 231: 227: 223: 222: 218: 214: 210: 206: 202: 201: 200: 198: 193: 191: 186: 180: 170: 168: 163: 161: 156: 151: 147: 144: 136: 133: 130: 126: 125: 123: 120: 118: 108: 106: 102: 98: 97:tax avoidance 94: 89: 87: 83: 78: 74: 72: 68: 63: 61: 57: 47: 45: 41: 37: 33: 29: 25: 21: 716: 639: 625: 611: 597: 583: 566: 552: 538: 518: 504: 493:. Retrieved 486:the original 473: 459: 445: 431: 417: 403: 386: 372: 361:. Retrieved 354:the original 341: 324: 307: 290: 284:. PwC. 2012. 273: 235: 194: 182: 164: 152: 148: 145: 142: 121: 114: 90: 79: 75: 64: 53: 27: 23: 19: 18: 183:The global 50:Description 811:Categories 495:2018-03-14 363:2018-03-14 265:References 177:See also: 105:tax havens 24:Orphan SPV 217:loopholes 101:tax haven 28:orphaning 530:Archived 243:See also 160:Matheson 128:parties. 712:Tranche 38:") for 173:Abuses 111:Owners 56:equity 44:equity 787:(CFO) 781:(CLO) 775:(CBO) 769:(CMO) 763:(CDO) 757:(CDS) 746:(MBS) 740:(ABS) 575:(PDF) 489:(PDF) 482:(PDF) 395:(PDF) 357:(PDF) 350:(PDF) 333:(PDF) 316:(PDF) 299:(PDF) 282:(PDF) 165:The 119:). 26:or 22:or 813:: 678:e 671:t 664:v 498:. 366:.

Index

structured finance
Special Purpose Vehicles
securitisation
equity
equity
securitisation
securitisation
off-balance sheet
securitisation
securitisation
securitisations
tax avoidance
tax haven
tax havens
Irish Section 110 SPV
Bankruptcy Remoteness
Charitable Trusts
Matheson
Non-Charitable Purpose Trust
Irish Section 110 Special Purpose Vehicle (SPV) § Abuses
securitisation
securitisation
securitisation
distressed debt
Section 110 SPVs
Irish financial crisis
loopholes
Trinity College Dublin
securitisation
Central Bank of Ireland

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