In bankruptcy proceedings, the trustee is the central figure responsible for administering the estate, liquidating assets, and distributing proceeds to creditors. The trustee's effectiveness in identifying and recovering assets directly determines how much creditors receive.
Robert J. Poulson has represented many bankruptcy trustees, debtors-in-possession, and SIPC trustees, and has served as special litigation counsel in complex liquidation proceedings.
The Role of the Bankruptcy Trustee
In a Chapter 7 bankruptcy, a trustee is appointed to take control of the estate, liquidate assets, and distribute proceeds to creditors according to the priority established by the Bankruptcy Code. Responsibilities include collecting and liquidating assets, investigating financial affairs, examining claims, pursuing recovery actions, and distributing proceeds.
Asset Recovery Actions
Preference Actions
Recover payments made to creditors in the 90 days (or 1 year for insiders) before filing. The theory: these payments "preferred" certain creditors over others. Defenses include contemporaneous exchange, ordinary course of business, and subsequent new value.
Fraudulent Transfer Actions
Recover assets transferred with intent to hinder, delay, or defraud creditors (actual fraud), or for less than reasonably equivalent value when insolvent (constructive fraud). Can be brought under the Bankruptcy Code (2-year lookback) or state law (4-6 years).
Turnover Actions
Compel a person or entity in possession of estate property to turn it over to the trustee.
Strong-Arm Powers
Avoid unperfected liens and security interests — treating the asset as unencumbered if a creditor failed to properly perfect its security interest.
Breach of Fiduciary Duty Claims
Pursue claims against directors and officers for breach of fiduciary duty — particularly where directors allowed the company to operate while insolvent or engaged in self-dealing.
The SIPC Liquidation Process
When a brokerage firm fails, the SIPC initiates a liquidation proceeding similar to bankruptcy but designed to protect brokerage customers. A trustee recovers and distributes customer property. SIPC provides supplemental protection up to $500,000 per customer. These proceedings involve unique issues — customer property rules, securities regulation, and tracing customer assets through commingled accounts.
Forensic Asset Tracing
In many cases, the debtor's assets have been scattered, hidden, or commingled. Recovering them requires forensic tracing — following the money through bank accounts, wire transfers, related-party transactions, and offshore structures. Our firm's asset recovery expertise is directly applicable. We recently recovered an asset valued at $1.4 million that had been unclaimed for 30 years.
Representing Debtors-in-Possession
In Chapter 11 reorganization cases, the debtor remains in possession (as a "DIP") with the rights and powers of a trustee. We represent DIPs, helping them navigate reorganization, investigate and recover assets, negotiate with creditors, and comply with reporting requirements.
Frequently Asked Questions
How are trustees compensated? A percentage of assets liquidated plus a percentage of distributions. This incentivizes maximizing recovery.
How long do recovery actions take? Preference and fraudulent transfer actions can take 1-3 years to litigate.
Can a trustee recover assets transferred overseas? Yes, though significantly more complex — requiring coordination with foreign courts and knowledge of international treaties.
What if the debtor didn't disclose all assets? Failure to disclose can result in denial of discharge, criminal penalties, and the trustee pursuing undisclosed assets. Forensic investigation can identify hidden assets.
Experience That Matters
Poulson Law's combination of Wall Street litigation experience, bankruptcy trustee representation, and forensic asset recovery expertise makes us uniquely qualified. Contact our Cooperstown office at 607-547-1195.
