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 ?
In the draft legislation the ring-fencing proposals have been largely retained intact, although differences have emerged between the government and a special committee of both Houses of Parliament, the Parliamentary Commission on Banking (PCB), on the extent to which the ring-fence should be "electrified." The PCB has recommended that attempts by individual banks to circumvent the ring-fence should result in supervisory action to break-up the group and that there should be a formal review at a specified future date of the effectiveness of the ring-fencing arrangements, with a view to adopting full separation of investment and commercial banking.
The Excluded Activities and Prohibitions Order, which defines a range of activities that will not be permitted inside the ring-fence, including a prohibition on ring-fenced banks having exposures to certain financial institutions.
It is important to be clear what problem the ring-fence is intended to solve.
There was a mixed reaction from investors and experts amid concerns over the implications of potential plans to ring-fence high street deposit-taking operations from the riskier investment banking business.
"We will be asking the Home Office not to ring-fence finance set out for PCSOs."
Rather than taking out the whole amount in one go, they decided to 'ring-fence' the amount with the repayments coming out at the end of each month as they usually do.
Gazprom non-executive Chairman Dmitri Medvedev said a special working group on removing the "ring-fence" that creates different conditions for foreign and Russian investors would conclude its work by June at the latest.
Ring-fence extra cash for Welsh health GIVEN that the UK Conservative government has announced additional NHS funding of PS10 billion a year above inflation by 2020, I call upon Ken Skates AM and Labour ministers in Wales to ring fence expected consequential funding for the health service in Wales.
PLAID Cymru has pledged to "ring-fence" PS590m for health services should they win power at the next election - an announcement the Welsh Government has described as "fantasy politics".
Little more than a week ahead of Chancellor George Osborne's March 20 Budget, critics of the PM's approach have set their sights on the socalled "ring-fence" for favoured priorities, arguing that it is forcing departments like justice, transport and the Home Office to bear the brunt of cost-cutting.
Summary: Chancellor George Osborne has said new powers will allow banks to be broken up if they do not follow rules to ring-fence risky operations.
Christmas savings firms will ring-fence families' money so it is untouched if the companies go bust, the government has said.