Retained Causes of Action
Retained Causes of Action are claims, litigation rights or other estate causes preserved under a Chapter 11 plan for later enforcement by the debtor, trustee or an estate representative rather than settled or abandoned at confirmation.
How it works
Section 1123(b)(3) permits a plan to provide for settlement or adjustment of claims belonging to the debtor or estate, or for retention and enforcement by the debtor, trustee or an appointed estate representative. Plans often preserve avoidance claims, contract claims, fiduciary-duty claims or other litigation for pursuit after the Effective Date, sometimes through a Litigation Trust.
Section 1123(b)(3) supplies the statutory mechanism
The plan can settle estate claims or preserve them for later enforcement by authorized parties.
Retention separates confirmation from final litigation resolution
A case does not need to adjudicate every lawsuit before the plan can become effective.
A representative can prosecute claims after emergence
Litigation Trusts and other representatives are often used when the Reorganized Debtor should not control retained litigation.
Disclosure and reservation specificity can matter
Courts differ on how specifically claims must be identified to preserve standing or avoid later defenses.
Worked example: contingent recovery stream
General unsecured creditors receive 15% cash initially plus trust interests tied to lawsuits with an estimated recovery range of zero to $60 million.
Why investors care
Value depends on probability of success, collectability, defense costs, litigation duration and who controls settlement decisions.
Common mistakes
Assuming every prepetition lawsuit survives confirmation automatically; treating a retained claim as guaranteed recovery; ignoring standing language; and confusing retention with a final judgment.
Example
A confirmed plan transfers $40 million of potential avoidance and fiduciary-duty claims to a Litigation Trust. Creditors receive initial cash distributions and may receive additional value if the trust later recovers on the retained claims.
Example
A confirmed plan transfers $40 million of potential avoidance and fiduciary-duty claims to a Litigation Trust. Creditors receive initial cash distributions and may receive additional value if the trust later recovers on the retained claims.
Professional note
Retention language matters. Post-confirmation standing can turn on how clearly the plan preserves the claim, who receives enforcement authority and what jurisdiction is retained.
Related terms
- Litigation Trust
A Litigation Trust is a post-confirmation trust created under a Chapter 11 plan to hold, investigate, prosecute, settle and monetize specified causes of action or related assets for the benefit of designated creditors or other beneficiaries.
- Plan Administrator
A Plan Administrator in bankruptcy is the person or entity appointed under a confirmed Chapter 11 plan to perform specified post-confirmation duties such as claims administration, distributions, asset disposition, reporting, litigation management or case-closing tasks.
- Post-Confirmation Jurisdiction
Post-Confirmation Jurisdiction is the bankruptcy court's continuing authority, within constitutional and statutory limits, to hear specified disputes and enforce, interpret or implement matters connected to a confirmed Chapter 11 plan, confirmation order and remaining bankruptcy administration.
- Avoidance Action
An Avoidance Action is a bankruptcy cause of action that uses statutory avoiding powers to invalidate specified transfers, obligations, liens or transactions and potentially recover property or value for the bankruptcy estate.
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