TRANSPARENCY IN CORPORATE GROUPS

This Article addresses a remarkable blind spot in American law: the failure to apply the well-established principles of secured credit to prevent inefficiency, confusion, and fraud in the manipulation of the webs of subsidiaries within corporate groups. In particular, “asset partitioning” has been a fashionable subject in which the central problem of non-transparency has been often mentioned but little addressed. This Article offers a concept for a new system of corporate disclosure for the benefit of creditors and other stakeholders. It would require disclosure of corporate structures and allocations of assets among affiliates to the extent the affiliates are to be treated as independent legal entities. Enforcement would follow the secured creditor model: the failure to follow the rules would lead to disregard of corporate independence. Modern secured credit law is subject to many criticisms, but the emerging versions of credit security transparency found around the world have increased both efficiency and fairness in commercial transactions. Its example suggests the basis for reforms to achieve an analogous result for the extension of credit to groups of corporations, especially in international finance where partitioning is often used in lieu of secured financing. The long-term objective is to create a body of scholarship examining this problem and to propose a regime of corporate responsibility and transparency to correct it.