Page 118 - Bankruptcy Volume 1

Chapter 15

Postconfirmation and Pre-Case Closing Reporting Requirements With and With-
out a Liquidating Trust

Experience has shown that debtors often mistakenly believe that confirmation of the plan and emergence
from bankruptcy indicates the end of the Chapter 11 process. In fact, the postconfirmation period can
last longer and have more activity than the preconfirmation period. There are a number of standard re-
porting obligations that must be completed between the time a case is confirmed and when it is officially
closed. These obligations include forming a liquidating trust if provided for in the plan, distributions to
claimants, ongoing reporting requirements (both financial and tax), and other requirements, including
formal procedural steps which may be necessary depending on the facts and circumstances, to close the
bankruptcy case.

Because of the strict limits regarding debtors’ exclusivity periods (that is, not more than 18 months after
the petition date to propose a plan, and not more than 20 months after the petition date to solicit ac-
ceptances of the plan fn 1 ), there is usually not enough time before confirmation to resolve all of the
claims, create distribution models, or ascertain assets for distribution with certainty. After confirmation,
the debtors will re-focus their attention on the needs of the surviving ongoing company. Accordingly, a
separate legal entity, such as a liquidating trust, is often put into place to handle the wind-down activities
associated with the execution of the plan.

The plan specifies the conditions necessary to effectuate an effective date, which is normally the date
that the transactions per the plan take place and when the plan is "substantially consummated." fn 2 The
effective date is a milestone that typically marks many key events, such as dissolution of the official
committee of unsecured creditors; repayment of DIP lenders; consummation of exit financing; the end of
oversight of business operations by the bankruptcy court (although the bankruptcy court will typically
retain jurisdiction for bankruptcy matters); and formation of trusts and committees to oversee the post-
confirmation process. After the effective date, the debtor or designees as defined in the plan must com-
plete the claims resolution process, make distributions to creditors, and identify and liquidate assets —
including contingent litigation assets.

Claims Reconciliation

Chapter 11 plans generally reserve rights of the debtors or their designees (such as trustees) to object to
claims during a postconfirmation period. Most plans provide for a 180-day claims objection period after
the effective date that can be extended by the bankruptcy court. Once an objection is filed, it is not un-
common in larger cases for claim disputes to span several years after confirmation. Proper care should
be taken to reserve assets for unresolved claims to allow for equitable distribution to all holders of al-
lowed claims in accordance with the provisions of the plan.

fn 1 11 USC 1121(d)(2).

fn 2 11 USC 1101(2).

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