Liquidating assets before bankruptcy
In a bankruptcy, a liquidating trust may be formed whereby certain assets are placed in a trust for the benefit of creditors who may have certain claims against those assets.
A liquidating trust may also be an effective method for a fund manager to wind down a fund without having a significant role in the liquidation.
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Also, if the time period is unreasonably prolonged, the status of the entity may change from a liquidating trust.In addition, it may be prudent for the fund manager to set aside certain cash reserves before making final distributions to the fund owners.This reserve could be held in the trust for any contingent liabilities as they become due.A liquidating trust is a new legal entity that becomes successor to the liquidating fund.The remaining assets and liabilities are transferred into the newly formed trust and the former owners of the liquidating fund become unit holders or beneficiaries of the trust.