Liquidation trusts typically allow for a larger return than a "fire sale" of the debtor's assets, which are transferred into a trust for the benefit of creditors upon confirmation of a liquidating plan.
A liquidating plan usually contemplates establishing a liquidation trust, assigning assets and causes of action, and appointing a liquidation trustee. 1989) ("Trustees of an estate in bankruptcy are subject to personal liability for willful violations of fiduciary duties."). To avoid such personal liability, trustees must take the utmost care in their duties, particularly considering the differing causes of action that could accrue. Supreme Court held that under the Internal Revenue Code, a liquidation trustee must "pay the tax due on the income attributable to the corporate debtors' property because [26 U. C.] §6012(b)(3) requires him to make a return as the 'assignee' of the 'property..a corporation.'" Holywell Corp.
Liquidations of struggling enterprises can take several forms.
Mc Carroll on behalf of Aramid Liquidating Trust, Ltd..
As chapter 11 filings increase, so will the number of chapter 11 liquidations. §1146(c) provides that "The issuance, transfer or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under §1129 of this title, may not be taxed under any law imposing a stamp tax or similar tax," failing to pay other taxes could create personal liability for the liquidation trustee if the liquidation trust's assets are depleted. The court held the trustee personally liable under 26 U. Although the trustee in Hemmen was not held personally liable for taxes, it is an example of the caution a liquidation trustee must exercise in administering the liquidation trust.
Chapter 11 is designed to give a business the chance to restructure some of its secured debt and to discount unsecured debt to a level where the business can grow out of financial distress.
An individual debtor can also file Chapter 11 to reorganize their personal financial situation when their debt levels exceed those allowed for a Chapter 13 reorganization.
Companies often use chapter 11 to liquidate their assets because management remains in place during the bankruptcy process.
Some argue that this results in a more orderly liquidation that increases the ultimate return to creditors.
Chapter 11 bankruptcy is distinguished from consumer bankruptcy by the immediate supplemental filings of what are termed “first day motions.” Upon filing a Chapter 11, an operating business requires court approval to continue business operations.
For example, immediate approval is needed to pay current employees and to authorize payment of wages that accrued prior to the filing.
Additionally, bankruptcy is not the only forum for liquidation of distressed companies, only the most common.
This article provides a synopsis of some of the various types of liquidations.
Chapter 11 bankruptcy is filed primarily to reorganize an operating business.