A Study On The Bankruptcy Trustee's Civil Liability

The Bankruptcy Code in the year of 2006 is highlighted by the system of bankruptcy trustee,which is even called "trustee centre doctrine".Actually,in the insolvency proceedings, the trustee in bankruptcy undertakes important obligations of take-over,clean-up,sell-off, sequestration,etc,concerning the bankruptcy estate;whether he or she can discharge those duties faithfully and diligently,has critical influence on the interested parties like creditors, debtors and so on.If the civil liability of bankruptcy trustee can not be defined appropriately,it may result in the nonfeasance and malpractice,and then let the legislative goals of the Bankruptcy Code fall through.Therefore,the study on the civil liability of bankruptcy trustee has great theoretical and practical significances.Based on the judicial practice both domestic and abroad,this paper discusses the basis, constituent elements,and assumption of the bankruptcy trustee's civil liability separately,and systemizes in detail the sort of related rules and their underlying political considerations, aiming to accurately identify the trustee's civil liability in a comprehensive and operational perspective.The full text of this paper consists of three parts besides the preface and the concluding remarks.Partâ… ,"The Basis of Bankruptcy Trustee's Civil Liability." No obligation,no liability. ----Civil obligations are the prerequisite and basis of civil liability.As his or her legal status is based on the direct provisions of the Code,the bankruptcy trustee's civil obligations are statutory fiduciary duties,which should be classified into two basic categories:1.duty of loyalty and 2.duty of care.Based on the integrity of trustee's personality trusted by beneficiaries,the duty of loyalty aims to negatively prevent that the trustee may access to interests conflicted with the bankruptcy trust,and then undermine the basis of fiduciary relationship.The specific contents of this duty includes:"self-dealing","conflict of interest","impartiality & its appearance".Mainly based on the capacity of trustee,the duty of due care requires the trustee to make every efforts to realize the benefit of interested parties in bankruptcy.It covers most obligations of the trustee.In this paper,this duty is mainly divided into discretionary and non-discretionary judgments,which are clearly clarified in varying degrees of care.Partâ…¡,"The Constituent Elements of Bankruptcy Trustee's Civil Liability." The breach of statutory fiduciary duties will result in the bankruptcy trustee's tort liability,in which the constituent elements include:"fault","damage" and "causation".First of all,as a response to Partâ… ,the "fault" is defined as a violation of statutory fiduciary duties.The deliberate fault is a breach of duty of loyalty,while negligence and gross negligence of the duty of care with respect to discretionary and non-discretionary judgments.The purpose of this classification is not to decide the level of trustee's liability,but to clarify the relief measures for different damages caused by breaches of different duties.Thus,intention or deliberate fault can be remedied without actual loss,while negligence is only responsible for specific damage.Meanwhile,in order to make the cognizance of fault more operative,this paper develops that the professional standards,entry qualifications and working papers should be considered in all to make the trustee's civil liability accorded with his professional characteristics.Secondly,this article clarified that the nature of damage is the unsatisfactory state of interests protected by legal obligation.This definition determines that the damage may exist in different forms,which ask for different ways of relief;thus,the way of bankruptcy trustees' civil liability is far from compensation only.Damage caused by intentional acts include both actual damage and "nominal damage",and negligence can only result in specific damage that can be measured by money.In addition,as a professional,the bankruptcy trustee's statement as well as the decision-making of bankruptcy-related matters should be trustable;if interested parties suffer pure economic loss resulted from the trustee's misrepresentation or erroneous decisions,they can claim for the trustee's civil liability as well.Finally,only when the damage is caused by fault,civil liability can be imposed on the bankruptcy trustee,namely the causal relationship must be established between the trustee's fault and victims' damage.The causation in tort is generally divided into two stages:factual causation and legal causation.The former focuses on whether the trustee's fault has factual damage on the victims' harm in a purely objective point of view of the fact,cognizance measures of which include "but for test" and "material element rule";while the latter focuses on whether it is necessary to attribute the trustee's fault to the interested parties' damage after the factual causation is established.This is mainly a political tool limiting the scope of the trustee's civil liability.The cognizance measures of legal causation include "direct consequences rule" and "foreseeability rule". Partâ…¢,"The Assumption of Bankruptcy Trustee's Civil Liability".After the civil liability is justified,then it needs to be implemented.This paper discusses:(1) "Who shall bear the civil liability?"(2) "To whom the civil liability is paid?"(3) "How to bear the civil liability?"(4) "When the civil liability can be immune?"First of all,"who shall bear the civil liability?" This question is related with the subject qualifications of the bankruptcy trustee,the Bankruptcy Code provides three types of bankruptcy trustee:social intermediary institutions,natural persons,and liquidation teams.As for the specific attribution of civil liability,social intermediary agencies' liabilities are various because of their different forms of organization,and may be imposed upon either the practitioners or the institutions of independent legal personality;when the bankruptcy trustee is a natural person directly appointed the court,he shall bear the civil liability by himself,no matter he belongs to some institutions or not;as liquidation teams are designed for some special circumstances,and mainly composed of temporary staff dispatched by the various organizations,to avoid the absence of responsibility,the subject of their liabilities shall be defined as the team members,and hold them jointly liable.In addition,this paper also discusses the subject of civil liability under two special circumstances:(1) the co-trustee's liability;and(2) the liability between predecessor and successor trustees.Second,"to whom the civil liability is paid?" Article 130 of the Bankruptcy Code provides that the trustee shall be responsible for creditors,debtors,and third person.Aiming at this clause,this paper provides a detailed analysis:(1)the creditors shall include the unsecured creditors,the secured creditors,the labor creditors(that is,workers of debtors),and tax creditors;(2)the debtor has indisputable interests in the bankruptcy estate,clarifying the question of"whether the debtors can claim for the trustee's liability?";(3) "third person" shall be defined restrictively,and it refers in particular to someone who have interests in the bankruptcy estate besides creditors and debtors,including recall right holders and other interested parties.Third,"how to bear the civil liability?" As Partâ…¡has referred different forms of damage ask for different methods of relief,this paper here mainly dealt with the appropriate ways for the trustee to bear his civil liability,basing upon the provisions of General Principles of Civil Law.The "nominal damage" can be protected by precautionary ways of liability,such as cessation of infringement,removal of obstacle,elimination of danger,etc;while the actual damage which may be measured by money mainly apply to remedial ways of liability,such as compensation for loss,restitution of property,and repristinaton,etc.Finally,"when the civil liability can be immune?" Based on the interest balance between the promotion of bankruptcy trustees' profession and protection of interested parties in the bankruptcy,this paper propose that the bankruptcy trustee may be immune from civil liability for some injurious acts.The cases of trustees' immunity include:(1)the trustee's commercial decisions are protected by the "business judgment rule",as long as the trustee acts reasonably, the results of his behavior shall not be excoriated;(2) if the trustee has appropriately notified the interested parties his decisions and acquired with leave of the court,and then he shall not be liable for damage that caused;(3)if the third party,namely person other than involved in the bankruptcy case,is harmed by the trustee's official conduct,he shall obtain indemnity from the bankruptcy estate rather than from the trustee's personal pockets.