Liquidating Trustees’ Disclosure Reforms Need More Transparency

An August bankruptcy court decision has drawn attention to the inherent conflicts surrounding the disclosure obligations of liquidating trustees. In In re Fresh Acquisitions, the liquidating trustee entered into a post-confirmation litigation funding agreement without notice or court approval.

Two years later, the court discovered—and voided—the agreement in part because the trustee entered into it without prior disclosure or approval.

Much of the focus among commentators following that decision centers on bankruptcy litigation funding disclosure. But the post-confirmation disclosure problem isn’t limited to a particular issue in a particular case. The emphasis on litigation funding, while understandable given the case’s circumstances, misses the forest for the trees.

Reforms to increase transparency in the post-confirmation stage of bankruptcies would help all stakeholders and allow bankruptcy judges to ensure compliance with approved plans and trust agreements.

The Bankruptcy Code imposes stringent disclosure obligations on bankrupt entities, beginning with the initial petition and continuing throughout the plan process. Debtors are subject to broad disclosure rules—initial filings, monthly operating reports, sales and bidding procedures, disclosure statement and plan documents, and more must all be reported.

However, once a plan is confirmed and a liquidating trust is operational (where applicable), the disclosure requirements effectively end—even though plan implementation and distributions to creditors may depend on certain events in the future. The liquidating trustee’s limited reporting obligations derive from a mix of statutory authority, local rules, plan documents, and bankruptcy court orders.

Post-confirmation reports used in all Chapter 11 bankruptcy cases stem from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This law directed the Department of Justice to issue rules implementing uniform periodic reporting by debtors-in-possession or trustees.

The current post-confirmation report form, adopted in 2021 following the rulemaking process, requires minimal reporting. The liquidating trustee must simply populate a one-page PDF by inputting dollar amounts approved, paid, and/or anticipated to be paid. The form doesn’t require or even provide space for any explanation or summary of activities to inform creditors about actual or potential distributions on account of their claims.

There are benefits to a limited-disclosure regulatory structure. The framework keeps certain administrative costs—always a concern for creditors—lower, while avoiding potential complications.

For example, if trustees were required to regularly report recoveries or demonstrate progress toward recoveries, they may overstate recovery prospects, rendering reports less reliable. Or, faced with pressure to show results, trustees may monetize assets at steeper discounts, diminishing recoveries.

Similarly, recoveries may be reduced if prospective litigation targets are disclosed, as putting parties on notice may cause them to hide assets. Expanded disclosure may prompt inquiries or objections by beneficiaries, which could increase administrative costs.

But although the existing scant requirements prioritize efficiency and theoretically avoid some pitfalls, they leave trust beneficiaries with little substantive information. Beneficiaries often have unanswered questions about potential recoveries for months—or years—following the creation of post-confirmation trusts, with no insight into the actions of liquidating trustees.

Sharing of information, required throughout the pre-confirmation stages of bankruptcy, also is essential in the post-confirmation stage. Increased transparency would benefit all stakeholders and diminish cynicism in the bankruptcy system.

Meaningful, substantive disclosure would encourage accountability of trustees and counsel, allowing bankruptcy judges to evaluate their performances and ensure compliance with approved plans and trust agreements. Trustees and counsel also would benefit, as comprehensive disclosures establish stronger bases for their fees and provide meaningful track records for future engagements.

Finally, creditors and beneficiaries simply “need to know.” Trustees should regularly inform creditors and beneficiaries of prospects for recovery and presumed timeframes. Although beneficiaries may not be able to increase or expedite recovery, better information may help them decide whether or when to monetize their claims. At minimum, knowing the status of their claims would enable them to plan accordingly.

Reform is necessary to ensure beneficiaries aren’t in the dark. Trustees should adequately explain the numbers listed in the post-confirmation reports in summary form.

Beyond that, quarterly or semi-annual status reports should be provided in narrative format, so beneficiaries—and courts retaining jurisdiction to ensure compliance with plan and related documents—have insight into trustees’ progress in fulfilling their responsibilities. The parameters of those reports should be outlined in the liquidating trust agreements. They may include updates on trust accounts and descriptions of investigations into recovery sources, completed transactions, litigation developments, and updates to anticipated distributions.

Although liquidating trust agreements and related documents often are filed as plan supplements on the eve of plan confirmation, bankruptcy judges are best situated to scrutinize these documents to ensure they contain sufficient reporting obligations for trustees.

These reforms must be balanced with the real concern of increasing administrative costs. Bankruptcy courts can navigate that productive middle ground through the plan confirmation process and their equitable powers.

In re Fresh Acquisitions might signal courts’ shift toward increased transparency or be a blip in the continued opacity of liquidating trusts—and overturned on appeal. Either way, the case highlights the perils of the existing limited-disclosure framework afflicting post-confirmation trusts.

The case is Gonzales v. Jones (In re Fresh Acquisitions), Bankr. N.D. Tex., No. 21-30721-sgj-11, 8/5/25.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Benjamin Ruzow leads Argo Partners’ litigation finance strategy, which includes sourcing and underwriting investments in commercial and bankruptcy litigation at both the trial and appellate levels.

Matthew Binstock concentrates on researching and analyzing various distressed companies at Argo Partners, with a specific focus on bankruptcy claims in the US and UK.

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