U.S. Bankruptcy Court, N.D. Tex. (Dallas Division) · US (TX) · 2025 · Decided; stay pending appeal denied Aug. 2025, appeal filed
Citation/Docket: Case No. 21-30721-sgj-11 (Bankr. N.D. Tex. Aug. 5, 2025)
Posture: Bankruptcy court, on its own motion, vs. a liquidating trustee's undisclosed funding agreement
Funder(s) involved: GLS Capital
A post-confirmation liquidating trustee entered into a litigation funding agreement in May 2023 under general powers in the trust agreement, without notice to creditors or court approval, and did not disclose it. The court learned of it at a status conference in June 2025 and demanded a copy, taking issue with both its label and its economics.
The court held the trustee exceeded his authority, lacked authority to borrow, and did not exercise reasonable business judgment given the funder's return. It directed replacement of the trustee, held the trust no longer bound by the agreement, and raised the prospect of fee disgorgement.
If a bankruptcy estate, liquidating trust, or receiver is the funded party, disclose the funding to the court up front and get it approved. Silence plus a rich multiple is how a signed funding deal gets torn up two years later.
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Compiled from public sources (court filings, published opinions, and secondary reporting) as part of the Institute's Phase 1 Dispute Library research. This is educational material, not legal advice; case citations should be independently verified before relied upon.