Chapter 2 Overview Section I: Introduction to Liquidation Trusts. Chapter 3 Federal Bankruptcy Proceedings... 9

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1 Table of Contents Using the Guide Chapter 1 The Purpose of A Practitioner s Guide... 1 Chapter 2 Overview... 5 Section I: Introduction to Liquidation Trusts Chapter 3 Federal Bankruptcy Proceedings... 9 A. Origins...10 B. U.S. Laws...11 C. Types of Bankruptcy Filings...11 D. Voluntary and Involuntary Bankruptcy Filings...14 E. The Debtor in Possession and Other Parties...16 F. Creditor Committees...18 G. Absolute Priority Rule...18 H. Some Key Terms and Concepts...19 I. The Process for Plans of Reorganization or Liquidation...22 J. Disbursing Agents, Plan Administrators and Trustees...24 K. Jurisdiction...25 L. Preference and Fraudulent Transfer Litigation...26 M. Conclusion...29 Chapter 4 Key Concepts Underlying the Use of Liquidation Vehicles.. 31 A. Alternative Forms of Liquidation Assignments for the Benefit of Creditors State Court Receiverships Federal Equity Receiverships Out-of-Court Workouts...36 xv

2 American Bankruptcy Institute 5. Overall Assessment of Alternatives...37 B. Advantages of These Alternatives over Bankruptcy...38 C. Advantages of Bankruptcy...39 D. Plan Administrators and Disbursing Agents...40 E. Liquidation Trusts...42 F. Advantages and Disadvantages of Liquidation Trusts...43 G. Alternate Forms of Liquidation Trusts...46 H. The Liquidation Trustee as Fiduciary...47 I. Conclusion...49 Chapter 5 Bankruptcy Trends and Developments in Applying Liquidation Trusts A. Key Trends B. Large Company Filings C. Case Mix...55 D. Sales of Assets...56 E. Out-of-Court Restructurings...58 F. Prepackaged Cases...59 G. Case Duration...60 H. Conventional vs. Prepackaged Bankruptcy...61 I. Conclusion...62 Section II: Liquidation Trusts Chapter 6 Defining the Liquidation Trust A. Beneficiaries of the Trust...64 B. Benefits of a Liquidation Trust Increased Speed Improved Timing Greater Efficiency Increased Options for Achieving Resolutions Improved Communication Enhanced Control...67 C. Disadvantages Risks of Delayed Case Closing Oversight Issues Taxes...68 xvi

3 4. Jurisdiction and Standing...68 D. Defining the Trust and Its Purpose...69 E. IRS Criteria for Designating a Liquidation Trust...70 F. Deciding on the Trust Structure...73 G. Conclusion...73 Chapter 7 Practical Concerns in Establishing the Liquidation Trust A. Effective Date...76 B. Taking Control of the Assets and Liabilities...77 C. Retaining Key Employees...79 D. Winding Down the Business: ERISA Issues Employee Benefit Plan Administration Fiduciary Responsibilities Administering Plan Assets Delegation of Duties and Authority of the Liquidation Trustee Benefit Plan Records, Documentation and Filings Benefit Plan Termination...85 E. Projecting Costs and Fees...86 F. Verifying Assets and Liabilities...87 G. Books and Records...88 H. Conclusion...89 Chapter 8 The Debtor, the Case, and Setting Up the Liquidation Trust A. Issues in Drafting Trust Agreements Cost Efficiency Access to Bankruptcy Court Transfers to the Trust Limitation and Release of Liability Beneficiary Identification and Communication Trust Accountability and Distribution Mechanisms...96 B. Plans and Disclosure Statements...97 C. Sample Language D. General Motors General Motors Trust Structures Creating Liquidity with the Trust Structure Costs and Benefits E. Tronox Bankruptcy Proceedings xvii

4 American Bankruptcy Institute 2. Settlements The Anadarko Litigation Trust Costs and Benefits F. Important Litigation and Liquidation Trust Cases and Examples G. Conclusion Section III: Special Issues Chapter 9 Legally Defining Management of the Liquidation Trust A. Confirmation Date and Effective Date B. Authority to Wind Up the Debtor in Possession C. Trust Funding D. Reporting Requirements E. Authorization for the Trustee to Act F. Governing Committees G. U.S. Trustee Reporting Requirements H. Conclusion Chapter 10 Taxes A. IRS Guidelines B. Trusts C. Use of Grantor Trusts D. General Guidelines for Liquidation Trusts E. Revenue Procedure Guidelines F. Taxable Events at the Funding of a Trust G. Risks of Taxation H. Filing Federal Tax Returns I. State Taxes J. Transfer Taxes K. Typical Beneficiary Questions L. Case-Closing Matters Involving Taxes M. Conclusion Chapter 11 Retention and Prosecution of Claims A. Need to Investigate and Analyze Potential Claims B. Exhaustion of Remedies and Subject-Matter Jurisdiction xviii

5 C. Retention of Claims Under a Chapter 11 Plan D. Standing of Liquidation Trustee to Assert Claims Bankruptcy Code Provisions Retention of Claims Under Plan Documents E. Standing of Liquidation Trustee vs. Standing of Individual Creditors F. Res Judicata and Judicial Estoppel General Res Judicata (Claim Preclusion) Judicial Estoppel Elements of Res Judicata and Judicial Estoppel: Browning v. Levy G. Effect of Debtor s Concealment of Claims on the Liquidation Trustee s Ability to Assert Claims H. Express Reservation of Claims as Bar to Preclusion Based on Res Judicata I. Adequacy of Description of Claims in Plan Documents Browning v. Levy Tepper v. Keefe Bruyette & Woods Inc J. Practice Pointers K. Conclusion Chapter 12 Effective Trust Management A. Notes on Effective Governance B. Guidelines for Banking and Cash Investments C. Managing Cash D. Sales of Assets E. Retention of Former Employees F. Insurance Issues G. Overview of Tax Filings H. Claims Administration and Other Support Services I. Use and Management of Settlement Agreements J. PACER K. Using Software Solutions L. Websites and Virtual Data Rooms M. Comments on the Retention of Professionals N. Conclusion Chapter 13 Trustee Liability and Indemnification A. A Trustee s Risks and Responsibilities B. Responsible Parties and Immunity C. Personal Liability and Fiduciary Duties xix

6 American Bankruptcy Institute D. Indemnifications E. Practical Considerations for the Newly Appointed Trustee Initial Analysis Determine Trust Terms Review the Trust for Easily Identifiable Impediments Define Procedures to Determine and Review Ambiguous Terms Investigate the Risk Tolerance and Financial Needs of Beneficiaries Use Liability-Limiting Clauses Understand the Termination of the Trust Sample Language for Trust Documents F. Conclusion Chapter 14 Director and Officer Litigation A. Duties of Directors and Officers B. Bringing D&O Actions C. The D&O Insurance Policy D. Property of the Estate E. Insurance Policy Coverages F. Wrongful Acts, Covered Losses and Claims G. Insurance Proceeds as Estate Property H. Priority of Payment Provision I. Automatic Stay Issues J. Payment of Defense Costs by Insurer K. D&O Policy Exclusions Insured v. Insured Exclusion Insolvency Exclusion Fraud or Dishonesty Exclusions Prior Knowledge Exclusion L. Exculpation M. Right to Rescind the Policy N. Severability Clause O. Effects of Insolvency on D&O Liability P. Factors to Consider Q. Defenses R. Conclusion Chapter 15 Mass Torts and Environmental Trusts A. Mass Tort Litigation B. Use of Litigation Trusts xx

7 C. Asbestos Bankruptcy Trusts D. Other Mass Torts A.H. Robins Kaiser Aluminum Dow Corning E. Benefits of Consolidating Mass Tort Litigation F. Environmental Claims G. Purposes of Environmental Trusts in Bankruptcy Cases H. Differences Between Environmental Trusts and Mass Tort Trusts I. Parties to the Environmental Trust Agreement J. Examples of Environmental Trust Agreements K. Conclusion Section IV: Conclusion Chapter 16 Case Closing Matters A. Guidance on Case Closings B. Taxes and Requests for Prompt Determination Bankruptcy Code Authority Trustee Discretion and Bankruptcy Court Involvement in Tax Matters Prompt Determination Procedures Authority to Handle Tax Matters in a Liquidation Plan C. Other Items D. Conclusion Chapter 17 Summary and Conclusion Important Litigation and Liquidation Trust Cases Glossary Appendix Contents Index xxi