May 30, 2013 Articles

An Introduction to Litigation Trusts

A look at these "relatively new creatures" and the emerging issues in litigation they've sparked

by Paige Holden Montgomery and Casey A. Burton

Over the past decade, Chapter 11 bankruptcy proceedings have yielded a number of "litigation trusts"—trusts whose raison d'être is solely the pursuit of certain litigation interests belonging to the debtor's estate at the time of the bankruptcy petition.  While litigation trusts are a relatively new creature, they are becoming more common as a category of litigants because their sole purpose is to pursue litigation and their activities are generally funded by an initial cash allocation from the bankruptcy estate. Courts have only just begun to address some of the important issues related to the existence of litigation trusts and their use to pursue claims on behalf of the creditors of an emerging debtor.

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