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Liquidating under a confirmed plan pursuant to a court approved liquidating trust agreement has substantial advantages. A number of these advantages include:
Creditors have more control over their own destiny if they act pursuant to a liquidating trust. The liquidating trustee is usually selected by the creditors and is generally subject to replacement by the creditors. Monthly payment of fees and expenses to professionals hired by a liquidating trustee is generally the norm, and these fees and expenses can be paid without the hassle of filing fee applications. Also, the liquidating trustee, upon approval by the governing creditor representatives, if any, often have the authority to settle litigation at a certain threshold amount without first obtaining bankruptcy court approval by way of a motion to compromise under Bankruptcy Rule 9019. By controlling the identity of the liquidating trustee and charting the course of the liquidation, the creditors have substantial power over the process.
Conversely, in a chapter 7, the chapter 7 trustee controls liquidation of the remaining assets and distribution of funds under the confines of the Bankruptcy Code. Under a chapter 7 scenario, the bankruptcy court must approve all asset sales, litigation and claim settlements and oversee the continued liquidation of the chapter 7 case. Moreover, counsel and other professionals hired by a chapter 7 trustee will have to file fee applications every 120 days to receive compensation for their work on the case. The continued oversight by the bankruptcy
