Holding Companies - Collateral

[Mr_S]

It is my understanding that holding companies can use thier equity held in subsidiaries as collateral, but my question is, what happens in the case where the holding company uses the funds to develop another project (completely independant of the subsidiary) using collateral from a subsidiary and that project fails. how does the bank then recoup the collateral? do they sell the equity holding or what? this is specifically with regards to CC's and privately owned companies.