Page 157 - Bankruptcy Volume 1

Yes No
16. The parent restricts or controls the subsidiary’s op-
erating funds, and the subsidiary acts as a division,
dependent upon the parent for funds, rather than as
a separate business entity capable of receiving and
disbursing funds.
17. Separating the books and accounts into distin-
guishable records would be extremely costly, vir-
tually impossible, or both.
18. Corporations do not fully observe corporate for-
malities.
19. Creditors look to the parent for actual payment as
demonstrated by invoices or other documents.
20. Parent and subsidiary companies cannot survive
separately.
21. A schedule listing the various officers and directors
of each corporation demonstrates no overlap of
personnel and indicates that directors and officers
of each company act independently.
22. In its tax returns and financial statements, a profit-
able corporation uses NOLs of a less profitable
corporation to shield its income, allowing for a
greater level of assets to be returned to its creditors.
Otherwise, no intercompany tax-sharing agreement
exists.
23. The parent and its subsidiaries either do not main-
tain or record separately and only update the rec-
ords annually so that they reflect somewhat arbi-
trary assignments of inventories and expenses.
24. Two or more of the entities are engaged in similar
businesses (for example, commercial real estate
development) or are mutually reliant.
25. The parent cannot succeed without the assistance
or sales of a subsidiary.
26. Separate filings will cause draconian effects on
creditors.
27. Cross-guarantees exist between various corpora-
tions.
28. The subsidiary functions as the alter ego, or second
self, of the parent.
29. One could cite fraud because of business’s inten-
tion to delay, hinder, or defraud (although argu-
ment alone is not enough to force consolidation,
especially if such consolidation would violate the
absolute priority rules in Section 507 of the Bank-
ruptcy Code).
Remedies to situations opposing substantive consolidation as just described may be as follows:

 Propose a reorganization plan that separates the classes of creditors, ensuring a more equitable or
evenhanded treatment.

 Utilize the power to reduce or remove certain claims through the avoiding powers of the Bank-
ruptcy Code to equalize the distributions among creditors.

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