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Trustee Talk
A bankruptcy trustee's duties are set out in § 704 of the Bankruptcy Code. The trustee's general obligation is to collect and reduce to money property of and close the estate as expeditiously as is compatible with the best interest of the parties. These obligations include the duties to be accountable for all property received by the trustee, the filing of periodic reports and summaries of business operations (if authorized to continue operating) with the court, U.S. Trustee and government tax units, and to file with the court and the U.S. Trustee a final account of the administration of the estate.
The trustee may have further obligations under § 959(b) of title 28 of the U.S. Code. Section 959(b) generally requires the trustee to comply with state laws when the trustee is "managing and operating" property in possession of the trustee. However, this is not a strict compliance statute. Analysis of § 959(b) is required and usually begins with Midlantic1 and, to a lesser extent, Kovacs.2 These cases set a framework for analysis of a trustee's duties as to the bankruptcy estate.
Three overarching principles have been ascribed to § 959(b): (1) the enactment of § 959 "provides additional evidence that Congress did not intend for the Code to preempt all state laws," (2) Congress intended to prevent trustees from insulating themselves by using the federal courts to circumvent compliance with state laws, and (3) an ongoing bankrupt business (and therefore the trustee) should not receive unfair competitive advantages merely because it seeks to reorganize itself under the Code.
When § 959 Applies
The majority of courts hold that a trustee's obligation to comply with state laws under § 959(b) applies only when the trustee continues to operate the debtor's business.' Courts have looked to Judge Learned Hand to understand that merely to hold matters in status quo, mark time and do only what is necessary to hold the assets in tact do not represent a continuance of business.4 For example, in N. P. Mining, the debtor's mining operations had ceased, though the trustee did engage in coal brokering to keep a contract with Scott Paper Company alive.5 The court stated that the trustee engaged in coal brokering merely to protect...