ring fencing

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Ring Fencing

The practice of a company creating a legal entity separate from itself in order to protect certain assets. For example, ring fencing may protect assets from taxation, regulation, or allow the company to hide it from creditors. Ring fencing often makes use of offshore accounting. It is usually legal, but there are limitations, such as maximum amounts that may be protected.

ring fencing

The legal walling off of certain assets or liabilities within a corporation. For example, a firm may form a new subsidiary to protect, or ring-fence, specific assets from creditors.
Case Study California's electricity deregulation of the late 1990s resulted in the state's electric utilities hitting the financial wall by 2001. Unable by law to raise the rates it charged its customers, the utilities lost billions of dollars buying electricity at rising wholesale prices during an energy shortage in the western United States. To protect one part of the company, publicly traded PG&E, parent of Pacific Gas & Electric, in January 2001 ring-fenced its National Energy Group, which was then able to obtain its own credit rating and borrow money when the remainder of the company was shut out of the financial markets. In April 2001 Pacific Gas & Electric filed for bankruptcy while protected National Energy Group continued to borrow funds for trading power and purchasing turbines. The ring-fencing protected National Energy Group from Pacific Gas & Electric's creditors, which, in turn, allowed the company access to the capital markets. Critics claimed the financial maneuver was an abuse that unfairly shielded assets from creditors.
References in periodicals archive ?
A law for the first time ever, to separate the retail and investment arms of banks, and erect a ring fence around the retail bank so its essential operations continue even if the whole bank fails.
That money had already been used by them - there were no funds to ring fence.
Ms Sheppard added that the Traffic Management Act proposed that high-performing councils should be able to widen the ring fence of their parking accounts to enable surpluses to be used for other projects.
Global Banking News-November 22, 2013--Credit Suisse to ring fence Swiss activities(C)2013 ENPublishing - http://www.
The restructuring plan incorporates a number of structural enhancements that ring fence PPL Electric utilities from the business risks of its parent and affiliated entities, and several restrictive covenants that benefit bondholders.
A report has said that UK rules were not enough to ring fence banks.
Global Banking News-December 21, 2012--Banking standards committee want ring fence to be 'electrified'(C)2012 ENPublishing - http://www.