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 ?
Osborne said: "In the jargon, we will "electrify the ring fence," adding that the Bank of England would be "the super cop" of Britain's financial system going forward.
Mr Osborne said the ring fence was not designed to end large, universal banking groups but to make them more "easily resolvable in a crisis".
To make a populist claim to protect Ysgol Llwyngwril on the one hand and ring fence health spending in Wales is totally contradictory.
The report stated that funding for children's centres is protected from cuts until 2013, but there is no information about Sure Start, early years services and childcare grants for the period after March 2011, when it is expected that the ring fence around children's centres funding will be removed.
Fitch notes that the OPUC currently maintains a relatively strict regulatory ring fence at PGE requiring PGE to maintain a 48% common equity ratio, thereby limiting the amount of cash PGE can upstream to Enron.
Under new rules, banks would be forced to ring fence their retail and wholesale banking operations, which could increase their overheads.
Responding to EHR'S claims they failed to ring fence savers' money, an HBoS spokesman said: "The EHR directors knew that any request to ring fence Farepak customer monies was not serious on their part.
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.