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ARTICLE · 16 DECEMBER 2024

The Day After: Navigating Post-Chapter 11 Trusts

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

Herbert Smith Freehills Kramer LLP

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An increasingly common feature of the chapter 11 landscape is the use of a post-bankruptcy trust to deliver value to creditors. Trusts offer an efficient vehicle to provide a recovery to creditors...

United StatesInsolvency/Bankruptcy/Re-Structuring
Joseph Shifer
Joseph Shifer
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By Joseph A. Shifer1

An increasingly common feature of the chapter 11 landscape is the use of a post-bankruptcy trust to deliver value to creditors. Trusts offer an efficient vehicle to provide a recovery to creditors if the value to be distributed is not immediately accessible upon the effectiveness of a plan and will instead be monetized over time.

In those cases, leaving the debtor in control of distributions to creditors is impossible because the monetization process requires oversight by a fiduciary other than the debtor. Delegating the monetization of illiquid assets to a trust acting for the benefit of creditors ensures that a fiduciary will act in the best interests of the creditors and permits the bankruptcy case to be closed or, even if formally kept open, to be run more efficiently as a result of a decrease in the number of estate professionals, reduced reporting requirements and potential cessation of payment of U.S. Trustee fees.

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