Section 1123(b) (3) of the Bankruptcy Code facilitates the use of a liquidating trust for prompt administration of the estate by providing post-confirmation standing to an appointed representative of the estate to enforce claims and interests.
By establishing a liquidating trust pursuant to section 1123(b)(3) in a confirmed plan of reorganization or liquidation, a debtor can transfer causes of action and other assets to a trust, for future liquidation and distribution to the debtor’s creditors, and avoid delaying plan confirmation.
The Bankruptcy Group works regularly with clients through all phases of the reorganization or liquidation of troubled businesses, including out-of-court workouts and distressed asset acquisitions.
For questions concerning insolvency law, including US bankruptcy law and insurance company insolvency law, please contact Ashley Stitzer at (302) 429-4242 or [email protected]
A plan must expressly retain claims to preserve a liquidating trust’s standing to pursue them after plan confirmation.
Liquidating trusts can be effective tools to wind down any business enterprise, including debtors in Chapter 11 bankruptcy cases and entities that dissolve outside of bankruptcy. To that end, in a Chapter 11 case, a debtor’s exclusive right to file a plan is limited to 120 days (subject to extensions for cause), but once a plan is confirmed, the bankruptcy estate ceases to exist and the debtor loses its status as debtor in possession, including its authority to act as a bankruptcy trustee and pursue estate claims.
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An oversight committee is often utilized as well to oversee the liquidating trustee’s certain decisions and actions.
Additionally, exculpation and release provisions provide further liability protection to the liquidating trustee. As the volume of crossborder Chapter 11 cases continues to increase, liquidating trustees prosecuting estate causes of action may face more personal jurisdiction challenges.