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REDEFINING INTO REALITY: SUBSTANTIVE CONSOLIDATION OF PARENT CORPORATIONS AND SUBSIDIARIES

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Substantive consolidation is a bankruptcy procedure that redefines multiple bankruptcy estates into a single bankruptcy estate. This redefinition results in the estate's assets and liabilities being added together to create a new bankruptcy estate. Creditors with claims against any of the separate estates receive a claim against the new estate. The main rationale behind applying substantive consolidation to certain cases is to promote equity. Substantive consolidation promotes equity when it redefines bankruptcy estates to better reflect the intent exhibited by the respective creditors in their dealings with the entities. Most recently the Third Circuit Court of Appeals created a new test that seems to have combined the previous approaches. Adopting a new test for determining when entities' estates should be consolidated will promote equity and help bring bankruptcy law back into reality. This new test will offer a reliable and more precise alternative to massively restricting the instances in which consolidation can be granted.

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