What facts and circumstances must be present in order for an entity to qualify as a valid, bankruptcy-remote special purpose entity (SPE)? This was the issue addressed by the bankruptcy court in Paloian v. LaSalle Bank, N.A. (In re Doctors Hospital of Hyde Park, Inc.), 2013 WL 3779657 (Bankr. N.D. Ill. July 17, 2013). The bankruptcy judge made clear that a court should go beyond evaluation of the documented list of “separateness factors,” and examine whether the behaviors of the related entities are consistent with their purported “separateness.” The court further noted that when analyzing whether an asset transfer is a “true sale,” courts should carefully examine the true sale case law elements to see if they have been actually satisfied by the transaction.
The (abbreviated) facts of the case are as follows: MMA was formed as a special purpose bankruptcy remote entity to purchase and hold Doctor’s Hospital’s receivables. At the time of Doctor’s Hospital’s bankruptcy filing, the key issues were whether MMA was a separate business entity, and not an alter-ego of the debtor, and (ii) whether the transfer of the receivables to MMA constituted a true sale.
The “separateness” issue, discussed in a prior bankruptcy court opinion (see Paloian v. LasSalle Bank, N.A., Case No. 02-363, 2011 Bankr. LEXIS 4745 (Bankr. N.D. Ill. Dec. 2, 2011) was appealed to the Seventh Circuit Court of Appeals.