Delaware SPVs as Living Legal Structures: A Study on Statutory Risk, Case-Law Lessons, and Deal Administration
Part I: Delaware Statutory Trusts — “Personhood” Is a Condition, Not a Given
Delaware statutory trusts ("DSTs") are widely used as special purpose vehicles in structured finance because they can be formed quickly, administered through professional trustees, and structured to support legal separateness, limited liability, and bankruptcy-remoteness features. A common—but risky—assumption in practice is that once a DST is formed at closing, its status as a separate legal person is permanently settled.
Delaware law does not treat separate legal existence as a purely philosophical concept. The Delaware Statutory Trust Act (the "DST Act") ties a DST’s existence and separate-entity status to formation steps and ongoing statutory mechanics. Under Section 3810 of Title 12, a statutory trust is formed upon filing its certificate of trust (or a later effective time specified in the filing), and—unless the certificate of trust and governing instrument provide otherwise—a DST is a separate legal entity.1
The DST Act further provides that once a certificate of trust has been filed and a governing instrument adopted, the trust is duly formed and continues in existence until cancellation of its certificate of trust.2
A. What “Personhood” Enables in a Transaction
For a securitization or other structured product, DST personhood is not a technicality. It is the legal foundation for treating the issuer vehicle as an owner of property, a counterparty that can enter contracts, and a distinct debtor (or non-debtor) whose liabilities do not automatically become the liabilities of trustees or beneficial owners. Transaction opinions and separateness representations typically assume that the DST exists as a separate person and that its decision-makers are properly empowered.
B. Where Personhood Becomes Fragile Post-Closing
The practical risk is not that the initial certificate of trust was never filed. The more common failure mode is that, over time, the trust’s legal structure and the deal’s operating reality drift apart. Several recurring issues merit special attention:
1. Governing instrument integrity and amendment discipline.
In many portfolios, the operative trust agreement becomes difficult to identify over time. Executed amendments may not be centralized, conforming changes may be circulated but never finalized, and administrators may rely on “forms” that do not match the version actually in effect. Because the DST Act is built around the governing instrument as the primary source of internal rules, document drift is not merely a housekeeping problem—it is a legal risk.
2. Trustee authority and direction mechanics.
Structured finance DSTs often have an owner trustee with limited, document-defined powers and multiple parties that can direct the trustee (e.g., an administrator, an equity owner, an indenture trustee under specified circumstances). If a material action is taken by a party that lacks authority under the governing documents, the action may be ineffective and can create downstream challenges to enforcement, standing, or validity of settlements.
A real-world illustration appears in litigation involving the National Collegiate Student Loan Trusts. In a decision denying a motion to approve a proposed consent judgment, the U.S. District Court for the District of Delaware concluded that counsel lacked authority to execute the consent judgment on behalf of the trusts under the relevant trust-related agreements and applicable law.3
The decision is notable for a common securitization fact pattern: the trusts had no employees and relied on a network of trust agreements, administration agreements, servicing agreements, and indentures that allocated authority among an owner trustee, administrator, indenture trustee, and servicers. When authority is distributed this way, governance risk is operational: the book must show, clearly, which party is empowered to act.4
3. Certificate maintenance and correction mechanics.5
Section 3810 sets out amendment, restatement, and correction mechanics for certificates of trust, including an obligation to promptly amend if a trustee becomes aware that a certificate statement was false when made or became materially false due to change. These provisions matter because the certificate is the public-facing anchor of the entity’s existence in Delaware.
C. Case Law Lesson: The “Book” Can Decide Who Controls the Trust
In the Delaware Court of Chancery’s decision in In re National Collegiate Student Loan Trusts Litigation, the court addressed disputes over governance and operation of a group of Delaware statutory trusts formed for student-loan securitizations. Among other holdings, the court concluded that the trusts did not hold a beneficial interest in the student loans serving as collateral and analyzed the duties and relationships among residual owners and indenture parties. For structured finance participants, the key practical takeaway is that a court will look closely at the transaction documents to determine what the trust owns, who has what powers, and what duties may arise.6
D. Practical Controls for DST Personhood Risk
A statute-aware DST review program is typically narrower than a full legal “re-papering” exercise. The goal is to confirm that the legal facts supporting separate existence and valid authority remain true. At a minimum, businesses should maintain a clean, current trust agreement package; track trustee resignations and successor appointments; document all material directions and consents; and verify that any certificate amendments or corrections required by the statute have been properly filed.
Part II: Delaware LLCs — Freedom of Contract Creates “Precision Risk”
Delaware limited liability companies ("LLCs") are similarly popular as SPVs. The Delaware LLC Act emphasizes maximum effect to freedom of contract and enforceability of LLC agreements. That policy is a feature, but it carries a predictable cost: the more the parties customize governance, authority, and remedies, the more the transaction depends on administering the LLC exactly as the agreement provides.7
The LLC Act also confirms that an LLC formed under Delaware law is a separate legal entity whose existence continues until cancellation of its certificate of formation.8
A. Administrative Drift Often Becomes Authority Litigation
In many SPV LLCs, day-to-day administration is performed by service providers under delegated authority. Over time, personnel turnover and “standard practice” can substitute for a careful check against the operating agreement. The common results: actions taken by the wrong person, amendments adopted without required approvals, and transfers or replacements treated as effective even though the agreement makes them void.
Delaware courts routinely enforce the operating agreement as written, including provisions that declare unauthorized acts “void” or “null and void.” In CompoSecure, L.L.C. v. CardUX, LLC, the Delaware Supreme Court explained that acts rendered void by an LLC agreement are generally incapable of ratification, reflecting the parties’ contractual choice to foreclose equitable “fixes.”9
A concrete example: in Absalom Absalom Trust v. Saint Gervais LLC, the Court of Chancery held that where an LLC agreement stated an unauthorized transfer was “null and void,” the transfer was void and the purported transferee lacked standing to demand books and records.10
B. Unauthorized “Manager” Acts Can Be Void as a Matter of Law
Authority failures are not limited to transfers. Delaware courts have held that actions taken without authority under an operating agreement can be void as a matter of law. For example, in a Court of Chancery decision involving an LLC’s operating agreement, the court held that an individual who purported to remove and replace a manager and to transfer LLC interests did so without authority under the agreement, and the actions were void.11
C. Practical Controls for LLC SPV Governance Risk
For SPV LLCs, the most effective controls tend to be simple: (i) maintain a definitive, executed operating agreement package and a single “authority matrix” summarizing who can act and how; (ii) require written approvals in the form and sequence the agreement requires; (iii) treat “null and void” provisions as operational red flags, not boilerplate; and (iv) periodically confirm that the certificate of formation, registered agent, and authorized persons reflect the reality of who is managing the entity.
Part III: From Statute to Book — Operationalizing Delaware Law in SPV Administration
Parts I and II illustrate a consistent point: Delaware alternative entities are statute-enabled, contract-defined structures. Delaware law provides the framework for separate existence and internal mechanics, while the governing instruments define the allocation of authority and risk. When the book is incomplete or administration diverges from the documents, the legal assumptions supporting separateness and enforceability weaken.
A. Treat the “Book” as the System of Record, Not the Archive
In most structured finance organizations, the transaction book is treated as historical documentation. It should instead be treated as the system of record that proves (i) the entity’s existence, (ii) the authority of its decision-makers, and (iii) the satisfaction of statutory mechanics that matter in stress scenarios. This shift—archive to system of record—is the single most effective way to reduce Delaware-SPV risk.
B. A Statute-Aware Review Framework
A practical program can be built around five repeatable checks:
1. Existence and filings. Verify entity existence under the relevant statute (DST certificate of trust; LLC certificate of formation), confirm no cancellation, and confirm registered agent continuity. For DSTs, confirm any required amendments, restatements, or corrections have been filed when certificate statements became inaccurate.
2. Governing instrument integrity. Identify the operative agreement, confirm execution, integrate all amendments, and ensure internal consistency with transaction documents (indenture, administration agreement, servicing agreements). This is where most “silent” risk accumulates.
3. Authority chain validation. Confirm trustee/manager appointments and successions, and maintain a clean chain of written consents, directions, and delegations tied to specific agreement provisions.
4. Practice alignment. Compare how the SPV is actually operated against what the documents require. Where operational practice diverges, either adjust practice or formally amend documents (in the manner required).
5. Stress-event readiness. Identify the few actions that are most likely to be scrutinized under stress—amendments, waivers, consents, settlements, enforcement actions, and bankruptcy-related covenants—and ensure each has a documented authority basis.
C. Why This Matters Most in Legacy Transactions
These controls are most valuable in legacy portfolios. Older deals often have the highest operational drift: amendments were executed under time pressure, successors were appointed informally, and teams assume “it’s been fine for years.” But courts deciding authority, standing, and enforceability issues often look to the book, not institutional memory.
D. Toolkit Available Upon Request from Structured Execution: Delaware SPV Review Checklist
To make this framework easier to implement across portfolios, platforms can deploy a short, practical Delaware SPV Review Toolkit: a downloadable checklist that maps statutory requirements and common case-law failure modes to concrete book-review and administration actions. The goal is not to turn business teams into Delaware specialists, but to give them a repeatable way to surface and triage issues before they become costly. Reach out to jesse@structuredexecution.com for more information.
Notes
1. 12 Del. C. § 3810(a)(2) (formation upon filing; separate legal entity unless otherwise provided); see Delaware Code Online, Title 12, Ch. 38, § 3810.
2. 12 Del. C. § 3810(a)(2) (duly formed upon filing certificate and adopting governing instrument; existence continues until cancellation).
3. CFPB v. Nat’l Collegiate Master Student Loan Trust, No. 17-cv-1323 (MN), decision denying motion to enter proposed consent judgment (D. Del. May 31, 2020) (finding counsel lacked authority to execute PCJ).
4. Id. (describing that the trusts had no employees and relied on trust-related agreements allocating roles among owner trustee, administrator, indenture trustee, and servicers).
5. 12 Del. C. § 3810(b)(2) (amendment; prompt filing obligation upon awareness of material falsity) and § 3810(e) (certificate of correction).
6. In re National Collegiate Student Loan Trusts Litig., Consol. C.A. No. 12111-VCS (Del. Ch. July 13, 2020) (analyzing governance/operation and document-based allocations of interests and duties).
7. 6 Del. C. § 18-1101(b) (policy of maximum effect to freedom of contract and enforceability of LLC agreements).
8. 6 Del. C. § 18-201(b) (LLC is a separate legal entity; existence continues until cancellation of certificate of formation).
9. CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807 (Del. 2018) (void vs. voidable; void acts generally cannot be ratified when agreement so provides).
10. Absalom Absalom Trust v. Saint Gervais LLC, C.A. No. 2018-0452-JRS (Del. Ch. Aug. 30, 2019) (unauthorized transfer void under “null and void” language; no books-and-records standing).
11. See, e.g., Court of Chancery decision (Del. Ch. Jan. 30, 2017) (holding actions taken without authority under operating agreement were void as a matter of law).
