Lending to a Subsidiary: Extra Caution Needed? Poma Inc. is the parent of Soma Inc., a 100%-

owned subsidiary created many years ago. A bank is considering making a loan to Soma, which is financially strong. Poma will not be guaranteeing the loan.

1 Would the consolidated financial statements or the subsidiary’s separate financial statements (or both) be useful to the bank? Wby?

2 If the parent were to file for bankruptcy under Chapter 7 of the bankruptcy statutes (the liqui¬

dation chapter), would the parent’s creditors have a legal claim against the subsidiary’s assets —

either on a parity with the subsidiary’s creditors or a higher priority than the subsidiary’s cred¬

itors — in settling creditor claims? Why or why not?

3 Can you think of two major special restrictions the bank might insist on to protect the loan to Soma because of its subsidiary status?