The framework and detailed guidance for analysing risk laid out in Section D. 1.2.1 of Chapter I is applicable for purposes of undertaking an analysis of risks in the context of business restructurings, and in particular for determining which party assumes a specific risk by reference to control and financial capacity. It is crucial to apply this framework to determine which party assumes specific risks before the restructuring and which party assumes specific risks following the restructuring. For example, where a restructuring purports to transfer inventory risk, it is relevant to examine not only the contractual terms, but also the conduct of the parties under Step 3 in the framework (e.g. where any inventory write-downs are taken before and after the restructuring, whether there is any indemnification for those inventory write-downs, which party or parties perform risk control functions and have the financial capacity to assume the risks). The results of this analysis may establish that before the restructuring one party assumed the inventory risk and that same party continues to do so after the restructuring notwithstanding a change in contractual terms. In that situation, the risk would continue to be allocated to that same party. References in this Chapter to “transfer of risk”, “relocation of risk, “shifting of risk” or “laying off of risk” should be read in the context of the guidance in Section D. 1 of Chapter I. In particular, the transferee of the risk is considered to assume the risk when the conditions set out in the framework for analysing risk in controlled transactions (Section D. 1.2.1 of Chapter I) are met ...

The framework and detailed guidance for analysing risk laid out in Section D. 1.2.1 of Chapter I is applicable for purposes of undertaking an analysis of risks in the context of business restructurings, and in particular for determining which party assumes a specific risk by reference to control and financial capacity. It is crucial to apply this framework to determine which party assumes specific risks before the restructuring and which party assumes specific risks following the restructuring. For example, where a restructuring purports to transfer inventory risk, it is relevant to examine not only the contractual terms, but also the conduct of the parties under Step 3 in the framework (e.g. where any inventory write-downs are taken before and after the restructuring, whether there is any indemnification for those inventory write-downs, which party or parties perform risk control functions and have the financial capacity to assume the risks). The results of this analysis may establish that before the restructuring one party assumed the inventory risk and that same party continues to do so after the restructuring notwithstanding a change in contractual terms. In that situation, the risk would continue to be allocated to that same party. References in this Chapter to “transfer of risk”, “relocation of risk, “shifting of risk” or “laying off of risk” should be read in the context of the guidance in Section D. 1 of Chapter I. In particular, the transferee of the risk is considered to assume the risk when the conditions set out in the framework for analysing risk in controlled transactions (Section D. 1.2.1 of Chapter I) are met ...