Understanding Liquidating Trustee in the Business Liquidation Process
A trustee is the person appointed to handle the funds resulting from a business liquidation, manage payment of debts, and more.
What are Liquidating Trustees?
When a business chooses to liquidate, someone must be appointed to manage the financial side of the process. As a full-service business liquidation firm serving the state of Florida, The Turning Group specializes in liquidating trustees to conclude the liquidation process and finalize the sale of a company’s assets.
Liquidating Trust Overview
At The Turning Group, a liquidating trust is an important piece of our business windup and liquidation process. If a chapter 11 bankruptcy or a bankruptcy-alternative windup ends in liquidation, liquidation trusts are formed to increase value and disperse to lenders the revenue of divested assets of the previously distressed and now liquidated business entities.
Chapter 11 bankruptcy is the most expensive as well as the most complicated of all bankruptcy proceedings. It involves the court helping a business reorganize its debts, assets, and obligations. A limited liability company, corporation, partnerships, and even an individual can file for Chapter 11 bankruptcy if they aren’t eligible for Chapter 7 or Chapter 13 bankruptcy. The United States Internal Revenue Service (IRS) had established guidelines that are applicable in cases liquidating trusts implement a Chapter 11 bankruptcy plan.
The debtor usually runs the business as usual but has to propose a plan of reorganization that often includes downsizing a business or liquidating assets to repay creditors. When a reorganization plan is confirmed, the debtor’s assets are transferred into a trust for the benefit of the creditors. Liquidating plans typically consider establishing liquidation trusts, assigning causes of action, trust assets, as well as liquidation trustees.
What Is a Liquidating Trust?
Liquidating trusts are new legal entities formed to become the successors to the liquidation entities. The assets and liabilities of the business entity are moved into the trust, and the previous owners of the liquidating entity become unitholders or beneficiaries of the trust.
Trust agreement between the former liquidation entity (or fund) and the liquidating trustees before the liquidation of the fund governs the newly formed trust.
Liquidating Trust Agreement
When liquidation trusts are established, they are usually accompanied by a trust agreement. Often one of the first steps in our business liquidation process, this agreement is composed to govern the operations of the trust and is carried out between the previous entity and the trustees before the business is liquidated. Such an agreement should outline trustee duties and governance in addition to distributions and other administrative matters.
The Role of a Trustee in Liquidating a Trust
After liquidating trustees are appointed, they serve as the trusts’ representatives, and they are responsible for respecting the trust agreement. As the trust’s administrator, the role of the trustee in liquidating trust is to manage the liquidating trust and trust assets by liquidating assets, paying lenders, solving any claims, and dispersing any available funds to the beneficiaries of the trust.
However, liquidating trustees don’t have a duty just to comply with the trust agreement and trust’s beneficiaries; they also have a fiduciary duty to the liquidation trust, meaning they are obligated to act solely in the interest of the trust. Liquidating trustees can be personally liable for breaching fiduciary duty as well as acting outside of their official capacity.
How Does a Liquidation of Trust Process Begin?
The liquidation of the trust process begins after a trust agreement has been completed, and the trustee is appointed. From here, it is the trustee’s job to handle all aspects of the liquidation process. Positions of liquidating trustees can be lucrative, although numerous potential liabilities exist.
When you work with The Turning Group, this begins with creating of a detailed inventory of the business’s assets followed by their valuation. The trustee may use this information to determine the total liquidation value by working with appraisers and auctioneers. Then, they are sold using the methods most appropriate for the situation.
Liquidating Trustees Remnants
Once the liquidation process is complete, the trustee will then begin to distribute the funds to any creditors. If the business’ debt is all paid off after the liquidation, any remaining funds will be distributed back to the company. With this money, the business owners can choose to either continue operating or soften the financial blow of closing their business for good.
As noted, making use of liquidating trustees may be an effective way to execute the liquidation process. However, it’s always best to seek advice from a liquidation expert prior to initiating a liquidation trust to make sure that this type of entity makes sense for the situation. At The Turning Group, we specialize in all areas of the liquidation process, including business windup, mergers, asset maximization, and liquidating trustees to manufacture innovative solutions to our clients’ needs. Contact us today to learn more about how we can assist you.
If your business is facing bankruptcy proceedings, The Turning Group can help you find a solution to keep you on your feet. Based in Doral, Florida in the Greater Miami Area, we offer comprehensive bankruptcy alternative and liquidation services to clients throughout the state of Florida. Contact us today at 305-640-5754 or fill out the form below so we can begin to steer you toward success.