Asset ownership and licensing of intellectual property

Corporate groups commonly utilise an asset protection strategy whereby the holding company provides financing to an operating subsidiary in return for security over the assets of that operating subsidiary. Adopting this strategy is designed to protect the assets against unsecured creditors of the subsidiary as it keeps the debt level of the operating subsidiaries high and secured and enables the holding company to take possession of those assets and retain or sell and apply the proceeds to its debts ahead of other creditors.

When considering a financed-based asset protection strategy in respect of foreign operations, the thin capitalisation rules, which limit a company’s deductible interest expense in respect of foreign operations, may reduce the commerciality of such arrangements.

See Asset ownership and licensing of intellectual property.