Special purpose entities under attack -

Introduction

It is quite common to use a special purpose entity (SPE) in the form of a company or trust for major projects, including those involving resources and infrastructure developments. The Federal Budget in May this year foreshadowed tax changes that could have adverse implications for the use of such SPEs. The Treasury has now released a Discussion Paper providing further detail of the proposed changes and inviting submissions by 10 August 2012.

Use of limited recourse debt

In financing of major projects, the lenders' rights of repayment and security are frequently limited to the cash flows and assets of the project. In limited recourse financing lenders decide whether to finance the project by evaluating the viability of the project and its prospects of success, rather than basing the decision on the creditworthiness of the project sponsor.