Study On The Legal Matters Of Risk-remote Mechanism Of Asset-backed Securitization

Asset-backed Securitization (hereinafter referred to as ABS), as a more effectivefinancing measure compared to traditional financing measures, has flourished since itsfirst appearance in the US in the1970s. Now China has also carried out somepractices in this field. In the structure of an ABS project, security is of greatimportance. So as to ensure the stable development of the ABS and protect theinterests of investors, the risk-remote mechanism plays a key role in an ABS project.This article mainly consists of three parts:The first part starts with the general introduction of ABS, describes the mainprocedures of establishing an ABS project and the basic elements consideredindispensable in an ABS project. Upon the introduction, the key role of therisk-remote mechanism in an ABS project stands out. This part also analyzes the mainfunction of the risk-remote mechanism, namely isolating the bankruptcy risk of theoriginator and keeping the bankruptcy risk of the SPV in the distance.The second part is the main part of this article which discovers and analyzes thelegal issues in the establishment of the risk-remote mechanism including choosing theproper form of the SPV, the re-characterization risk, the legal standards of true saleand the influence of fraudulent conveyance and preferential transfer and the design ofthe governance articles of a SPV so as to make the SPV less likely to go bankrupt.This part also analyzes two main challenges in the US judicial practices facing the risk-remote mechanism namely substantial consolidation and the corporate familydoctrine.The last part of this article goes back to the current legal environment of Chinafor the establishment of the risk-remote mechanism. Some related legal regulationsare discussed and some suggestions are proposed in this part.