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 ?
Plaid Cymru says it will ring-fence PS590m for health services if it wins the Assembly election
The government had already announced plans to force banks to ring-fence operations by 2019, in a bid to avoid taxpayers having to bail out troubled banks such as RBS and Lloyds -- as was the case during the financial crisis.
London: Britain's biggest banks will face being broken up if they fail to ring-fence their retail and investment arms, under draft legislation set to be announced by finance minister George Osborne.
I would be worried if the definition of a ring-fence were left to the regulator to decide," he told the commission.
It is important to be clear what problem the ring-fence is intended to solve.
The proposal to ring-fence retail activities would have the greatest negative impact on creditors of Barclays Bank, RBS and HSBC as they have UK retail banking and wholesale banking activities within the same legal entity.
The Llanelli AM is also certain that Tory promises to ring-fence the health budget will force spending to be cut in local services and housing.
We will be asking the Home Office not to ring-fence finance set out for PCSOs.
But now Christmas savings firms will ring-fence families' money so it is untouched if the companies go bust.
The ring-fence was expanded in 2010-11 to include specialist services and primary care spending.
The rebranding, to come into effect from 2018, comes ahead of new rules to ring-fence retail operations from investment banking.
Yesterday morning, Rangers were given the go-ahead by the Court of Session in Edinburgh to challenge the decision to ring-fence the money while the club battle cash problems.