Ali Khan has a plan to make his business "judgement proof". He incorporates a holding company called Khanco Ltd., which owns all the shares of a subsidiary; Khanex Inc Khanex operates his business

As Khanex makes profits, they are distributed in full by dividends to Khanco. Khanco then lends the money back to Khanex for purchasing assets, and registers a security interest in those assets. If Khanex runs into financial difficulty, which of the following is true?

A) This is a perfectly legitimate (or at least legal) scheme
B) Khanco's security interests takes priority over the claims of any unsecured creditors of Khanex, even though Khanex is subsidiary to Khanco.
C) Before extending credit to Khanex, its creditors should have checked to see if there were any registered security interests attaching to its assets.
D) Both A and B
E) All of the above

E