Liquidating Trustees Liability Insurance
Information

Ambridge’s Liquidating Trustees Liability Insurance policy has been developed to address the unique exposures facing liquidating trusts and their trustees. Because liquidating trusts are formed to maximize value and distribute to creditors some or all of the proceeds of divested assets of a formerly distressed and now liquidated entity, trusts and trustees are subject to scrutiny of already disgruntled beneficiaries or other third parties who may disagree with the manner in which the trustee is attempting to liquidate otherwise illiquid assets.

Adding to the concern of trustees is the fact that, by its nature, the trust is designed to liquidate and distribute all of its assets. As a result, while virtually all agreements governing such liquidating trusts contain indemnification and protecting the trustee except in the case of fraud or gross negligence, the trust may ultimately lack the financial wherewithal to support such provisions.

Ambridge also offers a unique tax coverage enhancement to its Liquidating Trustees Liability Insurance policy. A liquidating trust is a tax-efficient vehicle to liquidate assets because income of a qualifying liquidating trust is only taxed as income at the beneficiary level. However, to receive this favorable tax treatment, a trust must qualify as a liquidating trust. Without the benefit of insurance, a challenge to a trust’s status could lead to the diminution in value of the trust assets, or worse, if the challenge is made after funds have been distributed, there may not be sufficient trust assets to defend such challenge, or pay any tax, interest or penalties, and the practical recovery of funds from beneficiaries may be difficult. Ambridge’s Tax Qualification Insurance extension can protect trusts (and indirectly their beneficiaries) from the financial exposures resulting from a disqualification as a liquidating trust.

Uses by Deal Point

Some examples of where Liquidating Trustees Liability Insurance is responsive include:

  • Family dispute
    A large family owned company has recently been subject to declining fortunes. Although management attempted to formulate a plan to restructure the company under Chapter 11 of the United States Bankruptcy Code, weak business prospects in the industry, family infighting and mounting pressure from secured creditors resulted in a decision to formulate a plan of liquidation. The debtor's advisors recommended formation of a liquidating trust as it would be the most effective method of liquidating the remaining assets, however, the contemplated independent trustee is concerned about the possibility of lawsuits brought against her and the trust given the disgruntled family members and creditors. A Liquidating Trustees Liability Insurance policy is purchased to respond to claims against the trustee and the trust, and the independent trustee agrees to be appointed.
  • Termination of the trust
    A liquidating trust was established to maximize the value in the liquidation of certain assets of a reorganized entity. All assets have been sold and the cost of continuing to operate the trust is significant relative to the size of the assets available for distribution. The trustees have hired a professional consultant to locate all potential beneficiaries and have been advised that no remaining beneficiaries can be located. Given the depletion in the size of the trust, the trustees determine that it is most prudent to make a final distribution and to terminate the trust. However remote the exposure might be, the trustees are concerned that a beneficiary that could not be located could bring a lawsuit against the trustees alleging that they are personally liable for distributions that it should have received as a result of the final distribution. A Liquidating Trustees Liability Insurance policy is purchased allowing the final distribution to be made.
  • Sale of trust asset
    A liquidating trust sells one of its largest assets, a small piece of commercial property. Although the trust was represented by legal and other professional advisors during the sale of the property, one of the trustees (who was formerly the CEO of the grantor entity), was personally involved in the sale. The building was sold with very limited representations and warranties because the trustees intended to make a final distribution to all beneficiaries and then liquidate the trust. Despite the limited representations made and corresponding indemnity, the trustee is never the less concerned about being personally liable to the purchaser related to the transaction. A Liquidating Trustees Liability Insurance policy is purchased allowing the transaction to close.
Uses by Transaction Type

Potential uses of the product include:

  • Financings and Investments
    Under construction / Coming soon
  • Licensing Agreements
    Under construction / Coming soon
  • Liquidations

    Family dispute


    A large family owned company has recently been subject to declining fortunes. Although management attempted to formulate a plan to restructure the company under Chapter 11 of the United States Bankruptcy Code, weak business prospects in the industry, family infighting and mounting pressure from secured creditors resulted in a decision to formulate a plan of liquidation. The debtor's advisors recommended formation of a liquidating trust as it would be the most effective method of liquidating the remaining assets, however, the contemplated independent trustee is concerned about the possibility of lawsuits brought against her and the trust given the disgruntled family members and creditors. A Liquidating Trustees Liability Insurance policy is purchased to respond to claims against the trustee and the trust, and the independent trustee agrees to be appointed.

    Termination of the trust


    A liquidating trust was established to maximize the value in the liquidation of certain assets of a reorganized entity. All assets have been sold and the cost of continuing to operate the trust is significant relative to the size of the assets available for distribution. The trustees have hired a professional consultant to locate all potential beneficiaries and have been advised that no remaining beneficiaries can be located. Given the depletion in the size of the trust, the trustees determine that it is most prudent to make a final distribution and to terminate the trust. However remote the exposure might be, the trustees are concerned that a beneficiary that could not be located could bring a lawsuit against the trustees alleging that they are personally liable for distributions that it should have received as a result of the final distribution. A Liquidating Trustees Liability Insurance policy is purchased allowing the final distribution to be made.

    Sale of trust asset


    A Liquidating trust sells one of its largest assets, a small piece of commercial property. Although the trust was represented by legal and other professional advisors during the sale of the property, one of the trustees (who was formerly the CEO of the grantor entity), was personally involved in the sale. The building was sold with very limited representations and warranties because the trustees intended to make a final distribution to all beneficiaries and then liquidate the trust. Shortly after the purchase of the asset, the purchaser discovered that an employee of the trust had improperly committed to a contract providing significant improvements to the property's key tenant and that this had not been disclosed. A lawsuit is brought alleging fraudulent inducement and the trustee is named because he allegedly knew or should have known about the contract.
  • Mergers and Acquisitions
    Under construction / Coming soon
  • Restructurings and Workouts
    Under construction / Coming soon
FAQs

FAQs:

  • What type of underwriting submission does Ambridge need in order to consider a Liquidating Trustees Liability Insurance risk?
    Please provide us with a completed Liquidating Trustees Liability Insurance application together with all information requested in the application. Alternatively please provide the following information to receive preliminary terms: (1) A complete copy of the trust Agreement with all attachments; (2) Applicant's audited financial statements for each of the past three fiscal years (if available); and (3) Applicant's schedule/portfolio of assets for the Liquidating trust if not fully described in the financial statement
  • Who can be the insured under a Liquidating Trustees Liability Insurance policy?
    Coverage can be provided for claims against (a) the trustee only, (b) the trustee, with extension of coverage with respect to the trust's indemnification obligation to the trustee, (c) the trustee and the trust, (d) members of a trust advisory committee established present to the trust agreement (typically comprised of the members of the debtor's creditor's committee)
  • How long does it take Ambridge to perform a preliminary review of a Liquidating Trustees Liability Insurance submission?
    Generally we can provide preliminary terms within 24 hours. Completion of full underwriting is dependent upon how quickly detailed information is provided to Ambridge. Ambridge frequently can offer bindable terms within several days after receipt of the initial submission.
  • Will Ambridge consider Liquidating Trustees Liability Insurance risks in any jurisdiction other than the United States?
    No. Ambridge's primary underwriting focus is on exposures in the United States.
  • Certain provisions of Ambridge’s template Liquidating Trustees Insurance policy are not applicable to my client’s circumstances. Can the template policy be amended to remove or modify these provisions?
    Each Ambridge Liquidating Trustees Liability Insurance policy will be tailored to the specifics of the risk to be insured and an insured's specific circumstances. Once an initial proposal has been provided to you, please contact us with any provisions that your client wishes to have removed or amended so that we can consider your request.