The bankruptcy court confirmed a Chapter 11 liquidation plan in which the bankrupt corporation’s assets, including its claims against third parties, were placed in a liquidating trust overseen by a liquidating trustee. Such a trustee is not the same as a regular bankruptcy trustee. Hence, when the liquidating trustee settled a claim against a third party on behalf of the liquidating trust, the bankruptcy court properly did not apply the fair and equitable standard which governs settlements by a bankruptcy trustee. Instead, the bankruptcy court properly applied state law in interpreting the Liquidating Plan to require approval of the settlement if it represented a good faith judgment in the best interests of the beneficiaries of the liquidating trust to maximize net recoveries, which the bankruptcy court analogized to the business judgment rule.
A settlement of claims brought by the liquidating trustee overseeing bankrupt corporation’s liquidating trust is properly approved if in entering into it the trustee has made a “good faith judgment in the best interests of the beneficiaries of the liquidating trust to maximize net recoveries”; the more demanding “fair and equitable” standard which is applied to settlements by regular bankruptcy trustees does not apply.