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:

On August 2, 2010, Maru E. Johansen, in her capacity as the foreign representative (the “Foreign Representative”)1 in respect of Mexican insolvency proceedings regarding Compania Mexicana de Aviacion, S.A. de C.V. (“Mexicana”), filed a petition for recognition in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), commencing a case under Chapter 15 of the United States Bankruptcy Code.2 Mexicana and its affiliates operate Mexicana Airlines, Mexico’s largest airline.

On September 15, 2009, the United States Bankruptcy Court of the Southern District of New York ordered Metavante Corporation (“Metavante”) to make payments to Lehman Brothers Special Financing Inc. (“LBSF”) under a prepetition interest rate swap agreement guaranteed by Lehman Brothers Holdings Inc. (“LBHI” and, together with LBSF, “Lehman”) after Metavante had suspended ordinary course settlement payments under the swap.1 Metavante claimed a contractual right to withhold payment under Section 2(a)(iii) of the 1992 ISDA Master Agreement as a result of Lehman’s bankruptcy.