3.4 Management of Working Capital 61Information about the underlying assets. Layers of securitisation tend to
separate the original lender or broker of a loan from the ultimate bearer of credit
risk. This makes it challenging for investors to assess the quality of information
about the quality of the underlying assets and particularly challenging to regulate
the responsibility for the accuracy and usefulness of information.
Transfer of ownership of receivables. The transfer of title to receivables
requires a contract between the parties (the originator and the SPV). However,
protection against third parties typically requires notification to debtors (usually
the originator’s customers) in addition to a valid contract between the originator
and the SPV. There may even be other requirements as to form.
Finality of the sale. A traditional securitisation transaction will collapse, if the
sale of the assets to the SPV is not valid and enforceable. This raises two
questions. Is the sale of receivables to the SPV a “true sale” or not? Will it be
recharacterised as something else? Whereas a real sale typically is effective
between the parties and in relation to third parties, a mere assignment by way of
security is not always effective in relation to third parties and the originator’s
customers. This risk materialises especially in the event of the originator’s
insolvency.
The SPV. The SPV has no assets of its own. It issues securities to finance the
deal. The cash flows from the originator’s customers to the SPV should match the
SPV’s administrative costs and payments to investors. The latter should therefore
be contractually aligned with the former.
Ownership of the SPV. In a traditional “true sale” securitisation transaction, the
SPV cannot be owned by the originator, because this would lead to consolidation
of balance sheets and capital would not be released at all.
Balance sheet. IFRS have changed the accounting treatment of special purpose
vehicles.^147 The IFRS principles take a stricter view on derecognition (see section
3.3.2) and consolidation compared with the earlier rules.
Banking laws and tax. The SPV is typically founded in a jurisdiction where the
SPV is not regarded as a financial institution that has to comply with minimum
capital rules and where SPV is not liable for tax (in the Netherlands, Ireland, the
Channel Islands, etc).
For this reason, it was proposed by many after the subprime mortgage crisis that the
minimum capital rules for banks should have a wider scope.
Security rights to the receivables sold to the SPV. It is normal to employ a so-
called trust construction. However, the trust is a common law concept. It is
unknown to the laws of continental European countries. It should therefore be
carefully examined whether the trust construction is recognised and enforceable
not only in common law jurisdictions but also in the relevant civil law
jurisdictions.
(^147) IAS 39 (Financial Instruments: Measurement and Recognition); IAS 27 (Consolidated
and Separate Financial Statements); and SIC-12 (Consolidation—Special Purpose Enti-
ties).