assets which are concealed or fraudulently disposed of. An application to reopen the estate may be made within a reasonable time by a creditor whose claim has been proved or by a voluntary bankrupt after his discharge, but not by a trustee whose office has been terminated by the closing of the estate and the discharge of the bankrupt” (In re Goldman, 129 Fed. 212; In re Paine, 127 Fed. 246; In re Newton, 107 Fed. 429).

In one case a Federal court approved the reopening of the estate a year after it had been closed. The facts were that a first meeting of the creditors had been called on November 21, 1899, and no further action was taken by creditors after a disclosure that the debtor had no assets, and on January 28, 1902, the referee made his final report to that effect, and the estate was closed. More than a year later, on the death of the bankrupt, the creditors filed a petition to reopen, showing that the debtor had fraudulently transferred his assets prior to the bankruptcy proceedings. Held: The closing of the estate did not deprive the court of jurisdiction to reopen the proceedings and appoint a new trustee (Clark v. Pidcock, 129 Fed. 745; In re Shaffer, 104 Fed. 982; In re O'Connell, 137 Fed. 838).

It would seem, therefore, that a provision permitting the reopening any time within 3 years is valid, since it cannot be said that there are any vested rights as long as the court has apparently an unlimited period in which to set aside discharges and reopen closed cases.

Mr. SABATH. Mr. Chairman, the counsel of the select committee, Mr. H. N. Blaustein, has prepared some exhibits which are in support of the bill, and I would like to have them introduced in the record; and also a supplemental statement of Mr. Henry M. Garrson, who has appeared before you.

Mr. CHANDLER. That is satisfactory, and I suggest that they be inserted here. The subcommittee will now adjourn, subject to call. (The documents referred to follow :)

FALSE PROPAGANDA AGAINST THE SABATH BONDHOLDERS' CONSERVATOR BILL

WHAT IS THE BILL AND WHAT WILL IT DO

The causes contributing most to the many evils and abuses in the administration of bankrupt estates are the many administrative duties placed upon the courts. The courts neither have the time, the facilities, nor the training to exercise these administrative duties. As a result, many investigations were conducted, both State and Federal. The investigations and reports of Colonel Donovan and Hon. Thomas D. Thacher, former Solicitor General of the United States, and others-a bill introduced in the Senate by Senator Hastings, known as S. 3866-all disclosed these abuses and recommended a remedy similar to that provided in the bill of the select committee.

Colonel Donovan in his report said: "These responsibilities should be centralized in the executive branch of the Federal Government. The creditors will not exercise these responsibilities. Their admitted exercise by the courts has been ineffective, burdensome, and generally inefficient; has produced a multitude of rules and legalistic formalities, and has resulted in the criticism of the bench itself. Trustees should be supervised and licensed or subject to approval of the executive branch of the Federal Government." The Bankruptcy Act contemplated an orderly and economical liquidation of the assets of a bankrupt and not the performance of purely administrative duties by highly paid attorneys.

The Subcommittee of the Judiciary, Seventy-third Congress, second session, House of Representatives, in its investigations into equity receiverships and bankruptcy matters, had likewise found the many abuses prevalent in reorganization proceedings. It is needless to go into the question of abuses. Their existence is well recognized. Everyone, even those opposed to the bill of the select committee, admit their existence and are recommending that a remedy be found.

The Bankruptcy Act contemplated that the court's functions would be almost completely judicial. Although generally recognized that the courts were already overburdened with many administrative duties in bankruptcy, the enactment of sections 74 and 77B have placed a great many more such duties upon them. The Congress has thus far failed to provide for the facilities necessary in the

administration of bankrupt estates. If the Congress is to preserve estates in bankruptcy, it is now duty bound to enact into law the bill of the select committee. We maintain this is the long-sought remedy.

The bill of the select committee, H. R. 12064, a most important constructive measure, is free from constitutional attack. There are no provisions in this bill which limit, restrict, or interfere with the powers and duties of the courts. The establishment of a Conservator is solely as an aid thereto to bring to the court's attention all of the information and data necessary to properly determine the issues before the court. The Conservator is authorized to make investigations and hold hearings and submit his findings, with his recommendations, to the court, and the court may either adopt them or disregard them.

The Conservator will act independently and will furnish to the court all of the facts, and the true facts, which heretofore the court has been unable to obtain. It will be primarily his duties to relieve the court of its clerical and administrative duties, of which there has been so much just complaint, Through a Conservator will be brought about a greater measure of reform and uniformity, as against the haphazard methods and practices heretofore used, as well as the elimination of all the abuses. The astute lawyers representing receivers, trustees, referees, masters, trust companies, protective committees, and houses of issue, have found no constitutional grounds to attack this bill, as they had other bills on many occasions, but in their efforts to again delay, they are endeavoring to use the "bugaboo" that this bill will create a bureaucracy in centralizing the work in Washington or will add another bureau.

This bill does not authorize the creation of a new bureau. The carrying out of its provisions will be supervised by the Comptroller of the Currency and not centralized in Washington, as charged, utilizing to a great extent its present efficient force. A deputy or district conservator will be designated in every judicial district, who will have jurisdiction in all matters within that district. Not only is there no justification for the statement that there will be additional expense to the Government by the designation of the Comptroller of the Currency as Conservator, but, on the contrary, the bill specifically provides that in the performance of the functions of the Conservator he shall be paid on the basis of actual costs. This, undoubtedly, will eliminate the tremendous and exorbitant costs and fees now being charged and allowed in reorganizations under 77B, as well as in other bankruptcy matters. It is well conceded that the Comptroller of the Currency, in the administration and reorganization of insolvent banks, established an enviable record for efficiency and economy.

With respect to the charge that there may be delay in bankruptcy proceedings through the designation of a Conservator, reference need only be made to the provisions of the bill itself. Nowhere in the bill are there any provisions which might cause delay through the acts or omissions of the Conservator. The time for all steps to be taken in such proceedings are under the absolute control of the court. In fact, there are provisions in this bill which will rather expedite than delay the present procedure.

The Subcommittee on the Judiciary in its report hereinbefore referred to, said, “We are of the opinion that it is essential that legislation be enacted to prevent collusive receivership (and similarly other collusive suits and acts) * * *. If by reason of legislation which the Congress might enact correcting the present-day evils in our bankruptcy and Federal receivership practices, this loss to creditors could be materially reduced, and it will be seen what a wonderful work that Congress will have done and this can be done. Equity receiverships in bankruptcy matters have degenerated into nothing more or less than a pure and simple racket which should be stopped by congressional legislation and congressional action.

The opponents of the bill of the select committee, well recognizing the abuses prevalent under the present Bankruptcy Act, particularly under section 77B, have conceded the necessity for all of the provisions of this bill except the establishment of a Conservator. Having recognized these abuses and being in accord with the remedies suggested in this bill (they suggest enlarging the powers of masters), then it is inconceivable that there can be real and honest objection to a Conservator.

The enactment of section 77B has proven of great benefit in reorganizations, but at the same time has made possible the evils and abuses which the select committee, as well as other committees, has disclosed. This legislation is recommended by the select committee after 18 months of investigations and hearings in the larger cities of the United States, and a thorough study of the

causes and reasons underlying these evils and abuses. It is now the duty of the Congress to eliminate these abuses by enacting the proper legislation, which is recognized by all to be most necessary. Respectfully submitted.

H. N. BLAUSTEIN.

EXCERPTS FROM A REPORT ON ADMINISTRATION OF BANKRUPT ESTATES, SUBMITTED BY COUNSEL TO THE PETITIONERS IN THE MATTER OF AN INQUIRY INTO THE ADMINISTRATION OF BANKRUPT ESTATES CONDUCTED BEFORE HON. THOMAS D. THACHER, JUDGE OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, UNDER ORDERS OF SAID COURT, DATED MARCH 6, 1929 Page 2: In general, creditors have taken but little interest in the administration of bankruptcy estates. Elections of trustees have been controlled by proxies solicited by attorneys, collection agencies, and trade associations who, in most cases, have no interest in the proceedings other than to control the election.

Page 4: This theory has broken down in practice for many reasons. The act contemplated that the trustees would be zealous and energetic in representing the creditors. In actual practice the elections are too often manipulated by irresponsible outsiders for their own ends.

The act contemplated that the court's functions would be almost completely judicial. In practice, attempting to correct the laxity and inefficiency produced by the creditors' lack of interest, the courts have had thrust upon them administrative duties which they are not equipped to meet nor competent to perform and which they should not be expected to discharge.

The act contemplated that attorneys would play a minor part in administration. In practice they actually dominate so that it has become a legalistic rather than a business system, with their fees the largest item of bankruptcy expense. Their dominance has been due partly to the formalities of procedure laid down by the courts in their efforts to prevent abuses, and partly to the low compensation of receivers and trustees, who, because of that fact, delegate their work.

Page 5: The act had in mind that the creditors could be relied upon to supervise and direct the course of administration. In practice, the responsibility has been shifted to the courts, which cannot adequately meet it. The great increase of bankruptcy proceedings, with the diversity of rules and practice in the 84 different districts, indicates the need of centralized executive supervision.

Page 5: The judges have neither the time, the facilities, nor the training to exercise the administrative duties which have been thrust upon them.

Page 5: They cannot directly participate in administration. They either take no part at all or forward their claims for filing to the first collection agent or attorney who solicits them.

Page 6: The courts should be relieved of administrative responsibilities, and these responsibilities should be centralized in the executive branch of the Federal Government. The creditors will not exercise these responsibilities. Their attempted exercise by the courts has been ineffective, burdensome, and generally inefficient, has produced a multiple of rules and legalistic formalities and has resulted in criticism of the bench itself. Trustees should be supervised, and licensed or subject to approval, by the executive branch of the Federal Government.

Page 7: Unless there is such revision we can see nothing but a continuance of the evils that manifest themselves not only in this district but throughout the country. The courts will still be subjected to administrative burdens they cannot carry.

Page 9: Most of those appointed either had no training in liquidation work or were designated in so few cases that they never became really familiar with their more important duties. With but few exceptions they had neither the time nor the skill which the work required.

Page 10: Method of selecting receivers.-The Honorable John C. Knox, senior judge of the district, testified to the constant pressure put upon the judges to appoint particular persons:

* * *

"All of us were annoyed to death by these patronage questions. People met us on the street, people wrote to us I have innumerable letters, hundreds of them, I should say, from various people asking that particular persons be appointed I have had them come to my house at

* * *

night

*

* With respect to many of these requests, I sent for the man and talked to him and if I felt the fellow was decent I would appoint him and I suppose so far as different receivers are concerned, I appointed as great a number as any person, without any consideration of their politics Harassed by this constant pressure and annoyance, the judges have at one time or another attempted various methods of dealing with the problem.

* *

Page 11: Because their employment is regular instead of casual and because they are adequately paid, competent and responsible men have been secured who have become expert in their several fields. They are carefully supervised and each case, whether large or small, receives the same attention and the same efficient treatment. The whole process of taking possession, collecting the assets and examining the bankrupts has been greatly speeded up while at the same time minute attention is paid to details.

Page 11: A system has gradually been perfected whereby inquiring creditors can be given immediate information of the details and status of particular cases. Page 13: Blank proofs of claim are sent through the mail by claim, solicitors, or collection agencies or trade associations or, frequently, attorneys.

Page 15: In practice the creditors generally pay no attention to these notices and do not attend the required meetings. In practice also, as we have seen, the trustees generally do not in any sense represent the creditors, because of the growth of the receivership system and the breakdown of the election machinery. For these reasons the courts have had to take over from the creditors the burden of supervising administration and of safeguarding it against the abuses made easy by the creditors' lack of interest.

Page 16: The dominant role of attorneys has been due to two factors: (1) The inadequate compensation of receivers and trustees which has led them to delegate their duties to attorneys; (2) the various formal requirements and regulations which have followed upon the failure of the theory of creditors control and which require the services of attorneys.

Page 17: We see no way of reducing these expenses except by adequately compensating receivers and trustees so that they will not have to delegate their functions, and by stripping procedure of its formalities so that lawyers will be needed only for purely legal work.

Page 18: Many abuses have occurred in the bankruptcy practice, and none is more frequent than that by which the attorney for petitioning creditors becomes counsel for the trustees subsequently appointed. This mingling of interests frequently conflicting, is generally regarded by courts as working to the detriment of one of the parties and to the undue advantage of the other. Experience has shown the wisdom and necessity of separating the function and obligation of counsel by forbidding the employment in different interests of the same person * * * The danger of giving entire freedom of selection of counsel to the trustees lies in the temptation of the attorneys for some creditors when he becomes counsel for the trustees to use his functions as representative of all the creditors unjustly to favor or oppose particular creditors or to induce the trustees to do so.

Page 23: The utter lack of anything approaching uniformity of practice cannot therefore be remedied.

Page 23: No study has been made and there is no agency to make any study of the whole field of insolvency liquidation and settlement, including equity receiverships, State court receiverships, and statutory or common-law assignments or trust deeds.

Page 25: The appendix analyzes the delays in detail and shows that if the referee were given original jurisdiction to pass on objections and to confirm or reject the composition, with the right of review to the judge, the number of hearings and the length of time of the whole procedure would be cut at least in half in the ordinary case.

Page 26: The commissioner should be able to coordinate and effectively supervise administration; to bring about a greater measure of uniformity; to investigate and correct abuses; to study the major problems of administration on a national scale, and to make recommendations and reports regarding them and regarding the whole field of bankruptcy; and to provide means for adequate examination of the great mass of bankrupts who now obtain the benefits of the act without paying a penny to their creditors.

Page 27: The commissioner's licensing of trustees in the principal city localities could relieve the judges of their appointive burdens. By a study of the needs of each locality, aided perhaps by advisory committees of businessmen and attorneys, the commissioner should be able to lay down qualifica

tions for each locality which would make it difficult for irresponsible or incompetent persons or corporations to qualify for licenses; and through preliminary public hearings followed by the investigation of any objections made to the proposed licensing of particular applicants, the commissioner's final selections should be satisfactory to the community. Sole responsibility would rest on the commissioner and mistakes could be quickly rectified by the suspension or revocation of licenses.

Page 31: Inspectors should be creditors or their regular employees, whose claims had not been acquired by transfer after bankruptcy, and the referee should be empowered to disqualify any inspector from election where there were reasonable grounds to believe that he had, or was likely to have, any interest adverse to the estate. Inspectors should serve without compensation, but should be allowed their expenses.

This system has been thoroughly tested in England and in Canada and has proved satisfactory. It gives the creditors, through their elected representatives, a direct participation in administration. It is a simple, flexible, and business-like method of procedure, the trustee being analogous to the president of a corporation and the inspectors to its board of directors. It appears to be sufficiently protected against abuse, and additional safeguards not found in the Canadian or English acts have been included in the specific proposals suggested above. It would eliminate the mass of petitions, orders, affidavits, reports, and other papers which now clutter up administration. It would eliminate the necessity of employing attorneys except for purely legal work and would thereby greatly reduce the chief element of administration expense in all districts, namely, attorneys' fees.

EXCERPTS FROM THE REPORT OF THE ATTORNEY GENERAL ON BANKRUPTCY LAW AND PRACTICE

Page 40: "We have seen the faulty administration of estates, largely due to the frequent selection of an inefficient and untrained liquidating personnel, and to the complete confusion of administrative and judicial functions, which has burdened the purely business task of realization and liquidation with unnecessary legal expense. All this has brought the law into disrespect, has deterred businessmen of training and experience from participating in its administration, and has very largely turned the administration of business matters over to lawyers who, frequently underpaid for important legal services in bankruptcy, necessarily seek to charge for the time spent in routine and business details as for professional services."

"We have seen the lack of uniformity in practice under the act and of any coordination of effort to improve the methods of administration. We believe that the improvement and perfection of the law will depend upon constant consideration of problems which arise in its administration. It will not suffice merely to amend the law. Continuous vigilance in its admnistration is requisite to permanent improvement and we therefore believe that competent officials should be charged with the observance of its workings and the duty to suggest to the courts and to Congress methods for the improvement of its administration."

Page 90: "It is believed that such a process in bankruptcy will have great advantages over the cumbersome form of procedure under creditors' bills which has been evolved in the Federal equity courts. Jurisdiction in such cases is dependent upon diversity of citizenship-a purely artificial basis for the exercise of a bankruptcy power essentially related to the settlement to the claims and interests of a debtor and its creditors. If the corporation be insolvent, the equity process may be interrupted by proceedings in bankruptcy, resulting in forced liquidation at the instance of a handful of creditors. The equity process frequently requires expensive and uncoordinated ancillary proceedings in many courts. Effective reorganization is often dependent upon costly and long-delayed foreclosure proceedings. The Federal courts in the conduct of these proceedings are charged with responsibility through their receivers during long periods of time for the management of extensive business properties. The reorganization plan under which a committee buys in the property foreclosure is not brought within the effective supervision and control of the court. Creditors who do not appear in the proceedings may in later years appear and enforce their claims against the reorganization company if the plan has not adequately protected their interests.