Qualifications and Standards for Standing Trustees

DEPARTMENT OF JUSTICE

United States Trustees

28 CFR Part 58

RIN 1105-AA32

Qualifications and Standards for Standing Trustees

AGENCY: Department of Justice.

ACTION: Proposed rule.

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SUMMARY: The Department of Justice is proposing to amend the

qualifications required for an individual to be appointed as a standing

trustee. The Department of Justice is also proposing to issue standards

to govern the standing trustee. Finally, the Department of Justice is

correcting certain typographical errors in part 58.

DATES: Written comments must be submitted on or before September 16,

1996.

ADDRESSES: Please submit written comments to the Office of the General

Counsel, Executive Office for United States Trustees, 901 E Street NW.,

Room 740, Washington, DC 20530.

FOR FURTHER INFORMATION CONTACT:

Martha L. Davis, General Counsel, or Jeanne M. Crouse, Attorney, (202)

307-1399. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: Under the provisions of 28 U.S.C. 586, the

United States Trustee is responsible for appointing individuals to

serve as standing trustees in cases filed under chapter 12 and chapter

13 of the Bankruptcy Code, 11 U.S.C. 101 et seq., subject to the

approval of the Attorney General. Section 586 also directs the United

States Trustee to supervise standing trustees and their administration

of cases. The Attorney General has general supervision over each United

States Trustee and is authorized to prescribe by rule qualifications

for appointment of a standing trustee by the United States Trustee. See

28 U.S.C. 586 (c)-(d). Finally, the Attorney General, in consultation

with the United States Trustee, is responsible for fixing a percentage

fee and the maximum annual compensation for each standing trustee

subject to the limitations set forth in the statute, including the

actual and necessary expenses of the trustee. By internal order, the

Attorney General has delegated to the Director of the Executive Office

for United States Trustees (the ``Director'') the authority to fix

percentage fees and compensation and the authority to issue rules

governing qualifications for appointment and conduct of standing

trustees after appointment.

The qualifications promulgated by the Attorney General are

currently found in Secs. 58.3 and 58.4 of title 28 to the Code of

Federal Regulations. The proposed rule amends these qualifications and

formally incorporates certain fiduciary standards that govern the

conduct of a standing trustee and his or her operation. These standards

address the hiring of relatives, dealings with related parties, and

employment relationships among standing trustees.

This rule will aid the Director and the United States Trustees in

supervising standing trustees in the administration of cases and in

evaluating the actual, necessary expenses of standing trustees relative

to fixing appropriate percentage fees and compensation. Adherence to

the rule should assist the fair and impartial administration of the

office of the standing trustee, help maximize the efficiency and

purposes of case administration, and work to avoid improprieties,

whether actual or perceived, that could diminish the integrity of the

administrative process.

Executive Order 12866

This proposed rule has been drafted and reviewed in accordance with

Executive Order 12866, section 1(b), Principles of Regulation. The

Director has determined that this rule is not a ``significant

regulatory action'' under Executive Order 12866 section 3(f),

Regulatory Planning and Review.

Regulatory Flexibility Act

The Director, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this proposed rule and by approving it

certifies that this rule will not have a significant impact on a

substantial number of small entities.

Paperwork Reduction Act

This proposed rule contains no new information collection or

recordkeeping requirements under the Paperwork Reduction Act (44 U.S.C.

3501 et seq.).

List of Subjects in 28 CFR Part 58

Bankruptcy, Trusts, and Trustees.

For the reasons set forth in the preamble, the Department of

Justice proposes to amend 28 CFR part 58 as follows:

PART 58--REGULATIONS RELATING TO THE BANKRUPTCY REFORM ACTS OF 1978

AND 1994

1. The authority citation for part 58 is revised to read as

follows:

Authority: 28 U.S.C. 509, 510, 586, 5 U.S.C. 301.

2. In Sec. 58.1, paragraph (a) is revised to read as follows:

Sec. 58.1 Authorization to establish panels of private trustees.

(a) Each U.S. Trustee is authorized to establish a panel of private

trustees (the ``panel'') pursuant to 28 U.S.C. 586(a)(1).

* * * * *

3. Section 58.4 is revised to read as follows:

Sec. 58.4 Qualifications for appointment as standing trustee and

fiduciary standards.

(a) As used in this section--

(1) The term standing trustee means an individual appointed

pursuant to 28 U.S.C. 586(b).

(2) The term relative means an individual related by affinity or

consanguinity within the third degree as determined by the law of the

jurisdiction where the standing trustee is located, an individual in a

step or adoptive relationship within such third degree, or an

individual whose close association is the equivalent of a spousal

relationship.

(3) The term financial or ownership interest excludes ownership of

stock in a publicly-traded company if the ownership interest is not

controlling.

(b) To be eligible for appointment as a standing trustee, an

individual must have the qualifications for membership on a private

panel of trustees set forth in Sec. 58.3(b) (1)-(4), (6)-(8). An

individual need not be an attorney to be eligible for appointment as a

standing trustee. A corporation or partnership may be appointed as

standing trustee only with the approval of the Director.

(c) The United States Trustee shall not appoint as a standing

trustee any individual who, at the time of appointment, is:

(1) A relative of another standing trustee in the region in which

the standing trustee is to be appointed;

(2) A relative of a standing trustee in the region in which the

standing trustee is to be appointed, who, within the

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preceding one-year period, died, resigned, or was removed as a standing

trustee from a case;

(3) A relative of a bankruptcy judge or a clerk of the bankruptcy

court in the region in which the standing trustee is to be appointed;

(4) An employee of the Department of Justice within the preceding

one-year period; or

(5) A relative of a United States Trustee or an Assistant United

States Trustee, a relative of an employee in any of the offices of the

United States Trustee in the region in which the standing trustee is to

be appointed, or a relative of an employee in the Executive Office for

United States Trustees.

(d) A standing trustee must, at a minimum, adhere to the following

fiduciary standards:

(1) Employment of relatives.

(i) A standing trustee shall not employ a relative of the standing

trustee.

(ii) A standing trustee shall also not employ a relative of the

United States Trustee or of an Assistant United States Trustee in the

region in which the trustee has been appointed or a relative of a

bankruptcy court judge or of the clerk of the bankruptcy court in the

judicial district in which the trustee has been appointed.

(iii)(A) Paragraphs (d)(1) (i) and (ii) of this section shall not

apply to a spouse of a standing trustee who was employed by the

standing trustee as of August 1, 1995.

(B) For all other relatives employed by a standing trustee as of

August 1, 1995, paragraphs (d)(1)( (i) and (ii) of this section shall

be fully implemented by October 1, 1998, unless specifically provided

below:

(1) The United States Trustee shall have the discretion to grant a

written waiver for a period of time not to exceed 2 years upon a

written showing by the standing trustee of extraordinary and compelling

circumstances that make the continued employment of a relative

necessary for a standing trustee's performance of his or her duties.

(2) Additional waivers, not to exceed a period of two years each,

may be granted under paragraph (d)(1)(iii)(B)(1) of this section

provided the standing trustee makes a similar written showing within 90

days prior to the expiration of a present waiver and the United States

Trustee determines that the circumstances for waiver are met.

(3) No waivers will be granted for a relative of the United States

Trustee or of an Assistant United States Trustee.

(2) Related party transactions.

(i) A standing trustee shall not direct debtors or creditors to an

individual or entity that provides products or services, such as

insurance or financial counseling, if a standing trustee is a relative

of that individual or if the standing trustee or relative has a

financial or ownership interest in the entity.

(ii) A standing trustee shall not contract or allocate expenses

with himself or herself, with a relative, or with any entity in which

the standing trustee or a relative of the standing trustee has a

financial or ownership interest if the costs are to be paid as an

expense out of the fiduciary expense fund.

(iii)(A) The United States Trustee may grant a waiver from

compliance with paragraph (d)(2)(ii) of this section for up to three

years following the appointment of a standing trustee if the newly-

appointed standing trustee can demonstrate in wiring that a waiver is

necessary and the cost is at or below market.

(B) The United States Trustee may grant a provisional waiver from

compliance with the allocation prohibition contained in paragraph

(d)(2)(ii) of this section if one of the following conditions is

present:

(1) A standing trustee has insufficient receipts to earn the

maximum annual compensation determined by the Director during any one

of the last three fiscal years and provides the United States Trustee

with an appraisal or other written evidence that the allocation is

appropriate, or

(2) A Chapter 13 standing trustee also serves as a trustee in

Chapter 12 cases and provides the United States Trustee with an

appraisal or other written evidence that the allocation between Chapter

13 and Chapter 12 cases is appropriate.

(C) Except as otherwise provided below, a standing trustee may seek

a reasonable extension of time from the United States Trustee to comply

with paragraph (d)(2)(ii) of this section. To obtain an extension, a

standing trustee must demonstrate by an appraisal or other written

evidence, satisfactory to the United States Trustee, that the expense

is at or below market rate. In no event shall an extension be granted

for the use and occupation of real estate beyond October 1, 2005. For

personal property and personal service contracts, no extension shall be

granted beyond one year from the date on which this paragraph becomes

effective.

(3) Employment of Other Standing Trustees. A standing trustee shall

not employ or contract with another standing trustee to provide

personal services for compensation payable from fiduciary expense

funds. This section does not prohibit the standing trustee from

reimbursing the actual expenses incurred by another standing trustee

who provides assistance to the standing trustee provided that the

reimbursement has been pre-approved by the United States Trustee.

Dated: July 12, 1996.

Joseph Patchan,

Director.

[FR Doc. 96-18327 Filed 7-17-96; 8:45 am]

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