Liquidating trustee plan of reorganization
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.
Liquidating trusts created under bankruptcy plans often vest their trustees with authority to prosecute avoidance and related actions against the creditors and third parties. Bayard’s Bankruptcy Group has long provided services to debtors, official committees of unsecured creditors and equity holders, trustees, purchasers and lenders in bankruptcy cases.
Whether the trust is the product of a bankruptcy plan or a state law plan of dissolution, certain factors must be considered. Section 1123(b)(3)(B) of the Bankruptcy Code allows this prospect to be avoided.
To find out more, Lawyer Monthly hears from Ashley B. It states that a plan may provide for the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest.
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.
A plan must expressly retain claims to preserve a liquidating trust’s standing to pursue them after plan confirmation.
The dissolution procedures for a business organization vary, depending on the type of entity and the jurisdiction in which it is formed.
For example, as shown on the below chart, a Delaware corporation continues to exist for a period of three years following the filing of a certificate of dissolution, but a Delaware partnership or limited liability company’s legal existence continues indefinitely following an event of dissolution, until a certificate of cancellation is filed.
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.
While Delaware corporations may take advantage of a “safe harbor” process that involves notice to creditors and guidance of the Delaware Court of Chancery in approving reserves, this process is rarely invoked and is not available for other Delaware entity forms.
Failure to make “reasonable reserve” is a basis for liability on the part of the person(s) conducting the liquidation.
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.
An oversight committee is often utilized as well to oversee the liquidating trustee’s certain decisions and actions.