The New Frontier Of Substantive Consolidation

Law360, New York (August 6, 2013, 2:55 PM EDT) -- Perhaps the most far-reaching exception to the doctrine of corporate separateness lies in the power of a bankruptcy court to consolidate the assets and liabilities of numerous distinct legal entities and treat them as if they belong to one single entity. See FDIC v. Colonial Realty Co., 966 F.2d 57, 58 (2d Cir. 1992). The lack of statutory authority for bankruptcy courts to disregard the separateness of corporate debtors remains conspicuous, which helps explain why the jurisprudence largely limits substantive consolidation to situations where no other alternative is possible.

Indeed, Congress’ authorization of substantive consolidation in cases of spouses’ estates implies...

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