Isolation Of The Legal Risks In Asset Securitization Mechanism

Since developed by 30 years, Assets Securitization has attracted great concerns of various people and been paid much attention on because of its outstanding functions of financing. The core of Asset Securitization, as an important financial invention, is the risk-remote mechanism. Whether securitization will successfully accomplish, the anticipated effect will depend on the successful establishment and operation of such mechanism. In a word, the risk-remote mechanism is just the research on how to remote the risks occurred in Asset Securitization.Asset Securitization is accomplished by a set of steps which have strict logical structures. Its legal essence is that the creditor's rights get rid of identity and become independent property, and combine the circulative securities with the substantial guarantee which is the main form of credit. The main risk in Asset Securitization is the risk of bankruptcy, which has three forms: the risk from the bankruptcy of SPV to the Securitization, the risk from the bankruptcy of sponsor to the Securitization when transferring the assets, and the risk from the bankruptcy of sponsor to the Securitization after the transference of the assets.The bankruptcy of SPV means the loss of carrier of Asset Securitization, which will lead Asset Securitization to the failure. In the Asset Securitization, there are three legal forms for SPV to choose: Company, Trust, and Partnership. Also SPV may bankrupt in two situations: voluntary bankruptcy and forced bankruptcy by the creditors, correspondingly, there are ways to remote the risk of the bankruptcy of SPV, such as choosing the organization forms of SPV rationally, defining the operation scope of SPV, restricting the voluntary bankruptcy of SPV and limiting the debts and guarantees made by SPV.The assets being securitized will back to the account of sponsor, if the transference of property can't match the request of the law, and be liquidated. And the Asset Securitization failed. So when transferring the assets, the right way is needed just as the law required. Try the best to achieve "true sale" in legal essence to avoiding being recharacterized and take measures to prevent withdrawing the transference of the assets.After the assets are transferred, the bankruptcy of sponsor may still endanger the operation of Asset Securitization. The main reasons are that SPV may suffer from substantive consolidation and the administrator may terminate the executory contract. So cutting down the route of influence from the sponsor to SPV, and deigning the mechanism to make sure the investor can be paid on time after the executory contract is terminated is needed.However, the current domestic law on the risk-remoteness mechanism in securitization is not perfect. According to the current law, as referring to the remoteness of the bankruptcy risk of SPV, Trust may be the right organization form, while the company may in much trouble and need be released. As to the remoteness of the bankruptcy risk of sponsor when transferring the assets, there are no criterions on "true sale" andrecharacterization, except for the revocable transaction. Finally, to theremoteness of the bankruptcy risk of sponsor after transferred the assets, the modified Company Law has enhanced the possibility of substantive consolidation, while the spare servicer is also needed to dealing with the termination of executory contract.