Liquidating a trustee company
When the insolvent is wound up, the liquidator must determine and then seek out this right of indemnity from the trust’s assets.The liquidator also needs to explore its power to sell trust assets under the equitable lien it holds over those assets.Chapter 11 Liquidations The Bankruptcy Code's ultimate goal as it relates to businesses is to maximize value for creditors.In recent months liquidations, as opposed to reorganizations or going concern sales, have become a common method of achieving this goal.However, the impact of the insolvency and a liquidator appointment as the controlling officer managing the wind down of the insolvent can present problems for the trust itself and for any incumbent trustee of the trust due to the insolvent’s right of indemnity, which is secured by an equitable lien over the trust assets.
If Chester was put into liquidation it would have to resign in relation to all the other trusteeships, which would be very costly.
Often trust deeds use standard clauses whereby the insolvency of the corporate trustee automatically disqualifies it from acting as trustee.
This appears to protect the trust assets from the hands of a liquidator of the insolvent corporate trustee.
Indeed, even in cases where a substantial portion of the business is sold, the ultimate value to general, unsecured creditors is often derived from the liquidation of other assets.
While chapter 11 of the Bankruptcy Code is entitled "Reorganization," it is well settled that chapter 11 may be used to facilitate the orderly liquidation of assets.