If your debtor has filed a bankruptcy petition under Chapter 11 in Utah speak to an experienced Herriman Utah bankruptcy lawyer. Chapter 11 is complex. Often there could be disputes with the liquidator. The Chapter 11 liquidator plays an important role in the entire process.
The liquidating plan of reorganization in a Chapter 11 bankruptcy often provides a deadline by which claim objections must be filed in order to resolve these disputes expeditiously. Similarly, the liquidator may be required to follow certain expediting procedures, such as the utilization of an alternative dispute resolution program. A delicate balance must be struck—such mechanisms should not cripple the ability of the liquidator to object effectively to claims or to amend objections. An experienced Herriman Utah bankruptcy lawyer can file you claims with the liquidator within the time limit.
The plan of reorganization should also provide the liquidator with authority to compromise controversies. Another advantage that liquidating trustees have over Chapter 7 trustees is their ability to compromise certain levels of claims without having to obtain court approval. In the event that court approval is required for a settlement, the plan can contain standards for compromises and procedures for their approval.
Care and Disposition of Assets
The liquidator must have the power to care for and dispose of assets. The plan should provide the liquidator with adequate latitude to perform his or her duties concerning preservation of the estate. To avoid excessive expenditures of funds in maintaining assets of no value, like a bankruptcy trustee, the liquidating trustee should be empowered to abandon assets or dispose of them through appropriate procedures. The liquidating trustee should also be given authority to sell property of the estate with or without approval of the bankruptcy court. While the ability to submit a sale to the Bankruptcy Court for approval may be appropriate, and perhaps even necessary under certain circumstances, the liquidation process should not be hindered by the requirement of frequent recourse to the court. The ability to involve the court in post confirmation asset dispositions should be largely discretionary on the part of the liquidator or the supervisory creditor group, rather than mandatory.
The liquidator should also be expressly empowered under the plan of reorganization to carry out the operations of subsidiary businesses controlled by the estate. At a minimum, he or she should have the power to vote any equity securities the estate may hold. The liquidator should also have the power, perhaps subject to certain limitations, to select and put in place management for operating assets of the estate. In this capacity, the liquidator may wish to select and employ deputies to assist in the performance of specified tasks or activities, as deemed appropriate by the liquidator. The committee should have limited control or oversight authority to ensure that the liquidator does not incur excessive costs in this endeavor.
General Administrative Powers
Other powers that may be necessary for a liquidator to operate are generally consistent with powers afforded a trustee under applicable state trust law. He or she may require authority to make purchases, to lease space, or even to engage in construction or similar activities. Again, the test of what powers the liquidator must be given is determined on a case-by-case basis. The objective, however, remains the same: minimize the amount of time it takes to maximize the present value of the creditor’s recovery.
Bankruptcy Court Supervision of Liquidation
Even though a Chapter 11 plan is confirmed by the bankruptcy court and consummated by the transfer of assets into the liquidation vehicle, the bankruptcy court may retain jurisdiction over certain matters involving the debtor. However, the involvement of the bankruptcy court in the liquidation process under a Chapter 11 plan should not to be so pervasive that the court controls the process. To that end, the plan should provide that utilization of the bankruptcy court is largely discretionary. If court involvement is unnecessary, the continuing jurisdiction of the bankruptcy court probably should not be invoked.
To protect the interests of creditors and supervision of the persons conducting the liquidation, the bankruptcy court’s involvement should only be triggered by a party in interest or several parties in interest. In other words, “We’ll call you, judge, if we need you.” The liquidator should exercise powers in accordance with governing instruments and not at the direction of the bankruptcy court. If you believe the liquidator is not acting fairly, contact an experienced Herriman Utah Bankruptcy attorney. The attorney can challenge the liquidator’s actions in the bankruptcy court.
This limitation is of particular importance and value in the operation of a business during the liquidation process—the bankruptcy statutes restricting business operations to ordinary course transactions should not apply. The liquidator should be allowed to purchase and sell property, subject to approval of the oversight committee, without first obtaining court authority. He or she should be able to retain and compensate managers as he or she deems appropriate. In short, post-confirmation operations under a liquidating plan of reorganization, absent special circumstances, should be as free of court control as would be the case of a debtor operating post-confirmation pursuant to a non-liquidating plan. Nonetheless, certain areas should be and typically are addressed in the plan of reorganization. As with any Chapter 11 plan of reorganization, a liquidating plan provides for retained jurisdiction in the bankruptcy court after confirmation.
Resolution of Disputes Involving Liquidator
Jurisdiction may be retained in the court in order to allow for removal or replacement of the liquidator. The court may also retain jurisdiction in order to mediate differences between an oversight committee of creditors and the liquidator. Although subject to the control of an oversight committee, the liquidator needs recourse to the court in the event that he or she believes that the oversight committee’s instructions are improper. The plan of reorganization is likely to provide that the liquidator has fiduciary responsibilities to his or her constituency independent of those of any oversight committee. Under such circumstances, with two fiduciaries answerable to the same constituency, a dispute may arise regarding how the case should proceed. When a dispute is not clearly resolvable, the bankruptcy court is the proper forum for adjudication. Your experienced Herriman Utah bankruptcy lawyer can represent you in the bankruptcy court. Disputes between the liquidator and creditors are not uncommon.
The bankruptcy court may retain jurisdiction over the composition of the oversight committee (if one exists). If a committee member must be replaced, such replacement may also be subject to court approval, if desired. Similarly, if the conduct of a member of the committee is questioned, that dispute should, because of the court’s familiarity with the case, be handled before the bankruptcy court.
Disputes Regarding the Plan and Bankruptcy Confirmation
Disputes arising from interpretations of the language in the plan of reorganization should also be heard by the bankruptcy court. While many such disputes are peculiar to the liquidating plan and fall in that category of retained jurisdiction relating to protection of the liquidation process, other disputes are typical with any plan. For example, valuation of collateral issues and disputes over classification should remain in the bankruptcy forum. If you have issues with the plan of reorganization, consult an experienced Herriman Utah bankruptcy lawyer. You have the right to reject a plan of reorganization if you feel its not fair to you.
Sale of Assets
Facilitation of the exercise of bankruptcy powers by the liquidator requires retention of jurisdiction by the bankruptcy court to review proposed sales. The continued jurisdiction of the bankruptcy court serves as a necessary mechanism for “cleansing” property prior to sale; that is, property that might be otherwise impossible to sell because of confusion regarding title or conflicting claims or liens may be cleansed and sold through the bankruptcy court. That said, the retention of jurisdiction should not be such that the liquidator and the oversight committee are forced into bankruptcy court at each step of the liquidation process. Not every sale requires bankruptcy court approval. The size of the transaction, the property involved, and the circumstances surrounding the sale (including the identity of the purchaser) dictate whether the liquidator needs the protection of the bankruptcy court.
Conducting a sale of property pursuant to order of the bankruptcy court also provides an opportunity for other parties in interest to have their say with respect to the sale. By providing notice of the proposed sale to the entire constituency, the liquidator affords all members of that constituency an opportunity to appear and be heard in the bankruptcy court with respect to the desirability of the sale. This opportunity not only provides the individual creditor with a role in significant aspects of the liquidation process, but also provides some added protection to the liquidator.
Resolution of Claims
The bankruptcy court retains jurisdiction to consider objections to claims. The bankruptcy court also retains jurisdiction in order to estimate claims for purposes of distribution or for purposes of establishing reserves against distributions.
Bankruptcy court jurisdiction needs to be maintained over all the estate’s litigation. It is a convenient and central forum for the preservation and pursuit of bankruptcy causes of action.
The Automatic Stay
The bankruptcy court should retain jurisdiction involving stay litigation. The plan should provide that the automatic stay survives confirmation of a liquidating plan of reorganization. The liquidating plan should contain clear provisions staying actions against the liquidator or the estate itself. Additionally, the Bankruptcy Code severely limits the party’s (at least one with notice of the plan process) ability to pursue a claim against the estate or liquidator. In any event, whatever protection is provided to the liquidator and the estate under the plan should be enforceable by the bankruptcy court. Hence, the bankruptcy court should retain jurisdiction in order to ensure that such protection is given.
Taxes in Bankruptcy
The benefit derived from the powers of the bankruptcy court to hear and determine taxes should be retained. Since the liquidator may not be free of personal liability in connection with the payment of the estate’s taxes, quick determination of tax liability in the bankruptcy court is critical in order to avoid maintaining substantial reserves, thus reducing distributions.
The liquidator is required to maintain reserves at such times as distributions are to be made. The amount of these reserves should be subject to review by the bankruptcy court.
The bankruptcy court should have the ability to review the handling of funds by the liquidator, especially if the liquidator is given wide latitude in how funds are invested.
The bankruptcy court should have an opportunity to review and approve the report formats to be made by the liquidating trustee as well as the form of any security evidencing an interest in the estate being liquidated.
The bankruptcy court retains jurisdiction to modify deadlines set under the plan of reorganization, which might include the dates by which claim objections must be filed, certain assets must be disposed of, and distributions must be made.
Chapter 7 v. Chapter 11 Bankruptcy
While Chapter 7 is specifically structured for liquidations and Chapter 11 provides a vehicle for reorganizations, many liquidations are nonetheless carried out in Chapter 11. Sometimes what starts out as an attempt to reorganize evolves into a liquidating plan. On other occasions, a Chapter 11 filing may, at the outset, have been undertaken to facilitate an orderly liquidation.
Liquidating in the context of Chapter 11 plan offers a number of advantages compared to Chapter 7. Specifically, Chapter 11 plans provide greater creditor control, less pressure to sell assets prematurely, more investment options for the estate’s cash, reduced cost compared to staying in Chapter 11 (costs associated with creditors’ committees, lawyers, accountants, etc.), and overall flexibility in, among other matters, sorting out and dealing with the various classes of creditors. Flexibility and reduced cost have led to a huge upsurge in Chapter 11 liquidating plans implemented by a liquidating trustee. The liquidating plan must be drafted to insure proper supervision of the liquidation process and maximization of the benefits afforded by the Bankruptcy Code.
Herriman Utah Bankruptcy Lawyer Free Consultation
When you need legal help for filing a bankruptcy in Herriman Utah, please call Ascent Law LLC (801) 676-5506 for your Free Consultation. We can help you file a chapter 7 bankruptcy. A Chapter 13 bankruptcy. A Chapter 12 Bankruptcy. A Chapter 11 Bankruptcy. Refinanced Out of Bankruptcy. Bankruptcy Modifications. Refilings. Relief from Stay Motions. And Much More. We want to help you.
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