What Responsibilities Does a Liquidating Trust Have?
The liquidating trust is responsible for analyzing claims, making distributions to claimants and winding down the estate to close the bankruptcy case. Once the Court approves a plan, which details how the trustee will liquidate the assets and administer the claims, and appoints a liquidating trustee, the debtor and the incoming trustee work to determine an effective date for the plan.
How Exactly Does the Liquidating Trust Close the Bankruptcy Case?
The debtor’s assets are transferred to the liquidating trust on the effective date. The trustee then liquidates any remaining non-cash assets expeditiously in a commercially reasonable manner. The trustee also needs to wind down any remaining operations, including evaluating and rejecting leases, terminating employees or contractors, closing accounts with vendors, and finalizing any tax obligations of the debtor. The logistics to accomplish these tasks can be complicated, especially for large companies with multiple locations.
What Challenges Does a Liquidating Trustee Face?
While the trustee works to complete these steps expeditiously, challenges can arise when banks, taxing authorities and other stakeholders either have a different view of the situation and/or a different sense of urgency. These differences in priority can lead to “hurry up and wait” scenarios to get through the wind down phase, with many of these obstacles standing in a trustee’s way. The trustee must execute their duties quickly and efficiently to maximize the funds available for distributions.
How Does the Liquidating Trustee Ensure Proper Distributions on Claims?
Simultaneously with the abovementioned wind down tasks, the trustee must analyze claims against the estate from its creditors, vendors, customers and employees to determine validity, accuracy and proper priority following the Bankruptcy Code. Depending on the debtor’s size, this analysis could include a few dozen claims to thousands. The Bankruptcy Code gives particular claims priority over others, and the plan may provide specific deadlines for payments of priority claims. Generally, a plan will allow the trustee to negotiate with claimants to settle outstanding claims directly. To the extent the trustee has objections to the validity, accuracy and priority asserted in the claims, they must act within the confines of the plan and its deadlines in filing an objection. The trustee must work with their counsel, the debtor’s employees and directly with claimants to streamline the processing of these claims and get any distributions out to claimants as quickly as possible.
How to Choose the Right Firm to Handle a Post-Bankruptcy Liquidation.
Needless to say, you should select a firm with extensive bankruptcy experience. Ensure the firm you are considering has a dedicated team to manage and execute every aspect of a post-bankruptcy liquidation from preference analysis, to claim objections, to operational closures and data storage. The firm you hire should know how to conduct all of the relevant analyses and properly negotiate settlements to move the whole process smoothly toward completion.
If you need any assistance with a Chapter 11 bankruptcy case, our Consulting Practice can help walk you through this process. We provide the leadership and hands-on execution clients need to successfully execute a post-bankruptcy plan effectively and efficiently. Contact us for more information.