When the debtor sets aside money in a trust such that the investment and any return will be sufficient to pay the principal and the interest to the creditor, but the creditor does NOT release the company from the primary obligation to settle the debt, this type of arrangement is known as
A) in substance defeasance.
B) in substance refunding.
C) substantive repayment.
D) legal defeasance.

Question

Quizplus · Accepted Answer

This type of arrangement is known as in substance defeasance, as the debtor is setting aside money to defease the debt in substance (even though the creditor has not released the company from the primary obligation). Legal defeasance, on the other hand, involves the creditor releasing the company from the primary obligation upon the debtor fulfilling certain conditions (such as setting aside funds in a trust). In substance refunding and substantive repayment are not terms used in this context.

When the Debtor Sets Aside Money in a Trust Such