Bankruptcy Remote Entity Law and Legal Definition

Bankruptcy Remote Entity is a subsidiary or affiliate corporation whose asset/liability structure and legal status makes its obligations secure even in the event of the bankruptcy of its parent or guarantor. These business entities are formed in a manner designed to minimize the risk of becoming a debtor in a bankruptcy case. These types of entities require at least one independent director to be appointed, as well as a unanimous vote by the entity's directors, before a bankruptcy petition may be filed. They are usually established to perform limited functions, like purchasing and holding accounts receivable or other financial assets that generate revenue. They have only a few primary creditors, so that the likelihood of an involuntary bankruptcy is minimized. A bankruptcy-remote entity will sometimes issue securities instead of receiving a loan from a financial institution.