While shell companies and special purpose vehicles (SPVs) have undoubtedly been used by some for nefarious purposes and this of course shouldn’t be tolerated, their value in certain situations shouldn’t be dismissed out-of-hand either. It’s true that the use of SPVs has received a lot of bad press over recent months and, in some cases, this has been richly deserved, but SPVs can also be a helpful tool in corporate transactions and are used by many for genuine commercial and structuring reasons.

Setting up an SPV to hold real estate is a well-known structuring device in the property and corporate world and can have several advantages. Firstly, it’s a fairly simple way of separating assets where a property company, for example, has a number of properties. Where assets are separated into different corporate “wrappers”, it can simplify the disposal process at a later date. The purchaser has the choice to acquire the property directly from the seller SPV or to acquire the shares in the SPV itself. Where the SPV has entered into various contracts in relation to the property, a sale of the SPV’s shares will not require such contracts to be assigned or novated to the new owner together with all the resulting paperwork, time and costs that this process entails; instead, the SPV itself will continue to be the direct property owner and consequently the contracting party, albeit with new shareholders.

Second, any liabilities are ring-fenced within the SPV. As a limited liability company, its shareholders’ liability will be normally limited to the amount, if any, which is unpaid on the shares held by them. In an SPV situation, this is likely to be very little. Any purchaser at a later date can request comfort, for example by the use of warranty and indemnity insurance, so that they will have recourse in the event they need to bring a claim post-completion.

Third, where financing is required, lenders often prefer the use of SPVs as they reduce the lender’s risk; where a lender provides finance to a trading company with a history, the lender has to bear in mind that history and consider whether there are any potential skeletons in closets which could jeopardise their position, such as a litigation claim or prior security which is already in place. An SPV on the other hand has no such history and will be completely “clean”.

So yes, while SPVs can, and are unfortunately, used for improper purposes and we should query how such uses can be curbed, their big bad wolf persona may not always be justified.