[Federal Register Volume 61, Number 139 (Thursday, July 18, 1996)]
[Proposed Rules]
[Pages 37426-37427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18327]


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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

[[Page 37427]]

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]
BILLING CODE 4410-01-M