In liquidating a Web camlivechat
As of the Record Date, all common stockholders, holders of vested options and certain former limited partners of the Company's operating partnerships (each, a "beneficiary") will automatically become the holder of one unit of beneficial interest in the Trust"), formed pursuant to the recently confirmed and consummated Seventh Amended Joint Plan of Affiliated Debtors under Chapter 11 of the United States Bankruptcy Code (as modified, the "Plan") of Washington Mutual, Inc.
Liquidating trusts can be effective tools to wind down any business enterprise, including debtors in Chapter 11 bankruptcy cases and entities that dissolve outside of bankruptcy. To that end, in a Chapter 11 case, a debtor’s exclusive right to file a plan is limited to 120 days (subject to extensions for cause), but once a plan is confirmed, the bankruptcy estate ceases to exist and the debtor loses its status as debtor in possession, including its authority to act as a bankruptcy trustee and pursue estate claims.
Treasury Regulation 301.7701-4(d), 26 CFR § 301.7701-4(d) (“Treas. 301.7701-4(d)”) provides for establishment of a liquidating trust as a grantor trust, such that it will be a pass-through entity for tax purposes, without an entity-level tax. The plan, disclosure statement, and trust agreement must provide that the beneficiaries of the trust will be treated as the grantors and deemed owners of the trust and that the trust instrument (or plan if a separate trust agreement does not exist) requires the trustee to file returns for the trust as a grantor trust pursuant to section 1.671-4(a) of the Income Tax Regulations, 26 CFR § 1.671-4(a).
In 1994, the Internal Revenue Service (the “IRS”) issued Revenue Procedure 94-45 (“Rev. 94-45”), which established guidelines applicable to liquidating trusts formed to implement a Chapter 11 plan, which are similar to the considerations applicable to a liquidating trust outside bankruptcy. 94-45 lists twelve conditions which, if met, will generally result in the issuance by the IRS of an advance determination classifying the trust as a liquidating trust under Treas. The plan, disclosure statement, and any separate trust instrument must provide for consistent valuations of the transferred property by the trustee and the creditors, and those valuations must be used for all federal income tax purposes.
Whether the trust is the product of a bankruptcy plan or a state law plan of dissolution, certain factors must be considered. Section 1123(b)(3)(B) of the Bankruptcy Code allows this prospect to be avoided.The creditors become the trust beneficiaries and their claims are paid from trust assets by a waterfall established pursuant to the plan.In conjunction with the other provisions of the Bankruptcy Code that require a disclosure statement and plan to provide “adequate information” for a claim or interest holder to make an informed judgment about the plan, Section 1123(b)(3) effectively provides notice to creditors of retention and prospective enforcement of claims that may enlarge the estate’s assets for distribution.While the managers of a business may be well-suited for the tasks of running a going concern, their talents may not be optimal for the winding down process, which consists of marshaling and selling assets, making distributions to and communicating with creditors and estimating reserves.These tasks may not justify the salaries being paid to the management team, which may wish to move on to new challenges.