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liquidating trust agreements. Expediting the process will help reduce creditor frustration and speed distributions to creditors with allowed claims.
Importantly, accuracy should not be sacrificed by the speed of the process. Thus, it is critical that the liquidating trust allow for an extension of time to analyze claims and to amend claim objections to assert new theories for recovery.
In a chapter 11 proceeding where there is little or no monetary distribution to unsecured creditors, often a "gift" or seed money to fund the trust is negotiated prior to confirmation. A monetary gift to fund the trust may help the confirmation process if the unsecured creditors are assured of a distribution post-confirmation.
Liquidating trusts established for the sole purpose of pursuing litigation should initially be funded with enough money to pursue the litigation. As cases settle or are resolved, the litigation reserve may be increased. Contingency fee arrangements and fee caps may help ensure that the litigation reserve does not vanish prematurely.
Taxes are an important issue. A reserve for taxes should be established to cover all estimated tax liabilities. Some liquidating trustees request an early determination from the Internal Revenue Service to ensure that tax issues will not crop up after the returns are filed.
Likewise, it is important to establish reserves for the trustee's compensation and other professionals hired by the trust. Often, liquidating trustees negotiate fee caps and/or contingency fee arrangements to control costs and to provide certainty with respect to professionals' fees.
