Liquidators are commonly appointed to a company where, prior to liquidation the company was a trustee of a trust. Often when the liquidators are appointed, the company has ceased to be the trustee and a replacement trustee has not been appointed.

In these circumstances, the company in liquidation is a bare trustee in relation to the trust assets and the liquidator will assume this role until a replacement trustee is appointed. Often a replacement trustee is not appointed.

Does the liquidator as bare trustee have a power to sell trust assets?

Secured creditors should not allow a liquidator to sell a secured asset without first:

Large businesses and organizations that self-insure their legally mandated insurance requirements often use “fronting” policies in which the policyholder must reimburse insurers for all losses and expenses paid on the policyholder’s behalf. These policyholders must furnish substantial collateral to secure repayment, typically, enough to pay many years’ worth of actual and anticipated claims. This can amount to hundreds of millions of dollars, and typically exacerbates cash flow and balance sheet problems for policyholders under financial stress.

The United States Bankruptcy Court recently denied confirmation of a bankruptcy plan even though it found that the plan's global settlement was "fair and reasonable."1 Why? Because the plan's releases were too broad and "unreasonable" for many of the constituents. The case provides a pointed lesson to creditors and debtors alike — pay attention to the releases; overdoing it may sink the whole ship.