Chapter 11 liquidating trustee
The degree of specificity required in identifying preserved claims varies from jurisdiction to jurisdiction.
When drafting a plan and liquidating trust agreement, parties should ensure that the applicable jurisdictional prerequisites are met.
The creditors become the trust beneficiaries and their claims are paid from trust assets by a waterfall established pursuant to the plan.
In conjunction with the other provisions of the Bankruptcy Code that require a disclosure statement and plan to provide “adequate information” for a claim or interest holder to make an informed judgment about the plan, Section 1123(b)(3) effectively provides notice to creditors of retention and prospective enforcement of claims that may enlarge the estate’s assets for distribution.
These considerations may tip the scales in favor of setting up a liquidation vehicle and bringing in an administrator experienced with winding down operations.
The dissolution procedures for a business organization vary, depending on the type of entity and the jurisdiction in which it is formed.
A plan must expressly retain claims to preserve a liquidating trust’s standing to pursue them after plan confirmation.
Absent this provision, a debtor would be required to investigate and prosecute all avoidance and other causes of action prior to confirming a plan, which may take years.If followed, these guidelines should ensure that the establishment of the trust will be treated as a transfer from the bankruptcy estate to the beneficiaries followed by a deemed transfer by the beneficiaries to the liquidating trust. Finally, a liquidating trust may lose its grantor trust status “if the liquidation is unreasonably prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of liquidation can be said to be lost or abandoned.” 26 CFR § 301.7701-4(d).Additional considerations include retaining bankruptcy court jurisdiction in the plan and trust agreement so that a liquidating trustee can seek court approval of certain actions and decisions made on behalf of the trust.(fka Fisker Automotive, Inc.) (the "Debtors") filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under the provisions of Chapter 11 of the United States Bankruptcy Code.The Debtors continue to operate their businesses and manage their properties as debtors-in-possession.