PRIA, Government Policy, Made Personal

Summary

Creditors may vote to pick the trustee only if they have an allowed, undisputed, fixed, liquidated, unsecured claim that can get a distribution under the listed bankruptcy rules, do not have a big conflicting interest (a small equity stake is okay), and are not an insider. At the 341 meeting, voting creditors can ask for an election if they together hold at least 20 percent of those eligible claims. A candidate wins if at least 20 percent of the eligible claim amount is represented by voters and the candidate gets a majority of the claim amounts that vote. If no one is elected, the interim trustee stays as trustee.

Title 11, §702

Bankruptcy, Source: USLM XML via OLRC

(a)A creditor may vote for a candidate for trustee only if such creditor—

(1)holds an allowable, undisputed, fixed, liquidated, unsecured claim of a kind entitled to distribution under section 726(a)(2), 726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of this title;

(2)does not have an interest materially adverse, other than an equity interest that is not substantial in relation to such creditor’s interest as a creditor, to the interest of creditors entitled to such distribution; and

(3)is not an insider.

(b)At the meeting of creditors held under section 341 of this title, creditors may elect one person to serve as trustee in the case if election of a trustee is requested by creditors that may vote under subsection (a) of this section, and that hold at least 20 percent in amount of the claims specified in subsection (a)(1) of this section that are held by creditors that may vote under subsection (a) of this section.

(c)A candidate for trustee is elected trustee if—

(1)creditors holding at least 20 percent in amount of the claims of a kind specified in subsection (a)(1) of this section that are held by creditors that may vote under subsection (a) of this section vote; and

(2)such candidate receives the votes of creditors holding a majority in amount of claims specified in subsection (a)(1) of this section that are held by creditors that vote for a trustee.

(d)If a trustee is not elected under this section, then the interim trustee shall serve as trustee in the case.

Notes & Related Subsidiaries

Historical and Revision Notes

Legislative Statements

The House amendment adopts section 702(a)(2) of the Senate amendment. An insubstantial equity interest does not disqualify a creditor from voting for a candidate for trustee.

senate report no. 95–989

Subsection (a) of this section specifies which creditors may vote for a trustee. Only a creditor that holds an allowable, undisputed, fixed, liquidated, unsecured claim that is not entitled to priority, that does not have an interest materially adverse to the interest of general unsecured creditors, and that is not an insider may vote for a trustee. The phrase “materially adverse” is currently used in the Rules of Bankruptcy Procedure, rule 207(d). The application of the standard requires a balancing of various factors, such as the nature of the adversity. A creditor with a very small equity position would not be excluded from voting solely because he holds a small equity in the debtor. The Rules of Bankruptcy Procedure also currently provide for temporary allowance of claims, and will continue to do so for the purposes of determining who is eligible to vote under this provision. Subsection (b) permits creditors at the meeting of creditors to elect one person to serve as trustee in the case. Creditors holding at least 20 percent in amount of the claims specified in the preceding paragraph must request election before creditors may elect a trustee. Subsection (c) specifies that a candidate for trustee is elected trustee if creditors holding at least 20 percent in amount of those claims actually vote, and if the candidate receives a majority in amount of votes actually cast. Subsection (d) specifies that if a trustee is not elected, then the interim trustee becomes the permanent trustee and serves in the case permanently.

Editorial Notes

Amendments

1984—Subsec. (b). Pub. L. 98–353, § 472(a), inserted “held” after “meeting of creditors”. Subsec. (c)(1). Pub. L. 98–353, § 472(b)(1), inserted “of a kind” after “claims”. Subsec. (c)(2). Pub. L. 98–353, § 472(b)(2), substituted “for a trustee” for “for trustee”. Subsec. (d). Pub. L. 98–353, § 472(c), substituted “this section” for “subsection (c) of this section”. 1982—Subsec. (a)(1). Pub. L. 97–222 substituted “726(a)(4), 752(a), 766(h), or 766(i)” for “or 726(a)(4)”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1984 AmendmentAmendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title.

§702 Election of Trustee