tion of a trustee may not be tied up indefinitely by obstructive tactics which are obviously for the purpose of delay." e. Approval or disapproval by judge or referee.25-(1) IN GENERAL.-The bankruptcy act of 1867 contained a provision that: "All elections or appointments of assignees shall be subject to the approval of the judge, and when, in his judgment, it is for any cause needful or expedient, he may appoint additional assignees or order a new election." The present bankruptcy act contains no provision like the one above quoted from the act of 1867, but the Supreme Court has promulgated an order (General Order 13), reading as follows: "The appointment of a trustee by the creditors shall be subject to be approved or disapproved by the referee or by the judge; and he shall be removable by the judge only." It is evident that the Supreme Court intended by this order to establish a rule concerning the approval or disapproval of elections by creditors similar to that which existed under the act of 1867. The decisions under the present law on this point show that such has ferences, if possible, should be granted, and the appointment of a trustee by a referee after denying such request will be set aside and an election ordered. In re Nice and Schreiber (D. C., Pa.), 10 Am B. R. 639, 123 Fed. 987. Meeting continued by adjournments. Where the vote at a creditors' meeting showed no choice of a trustee, one candidate having a majority in number and another a majority in amount, and the supporters of both candidates informed the referee that an agreement was hopeless, and there was nothing to show that reasonable opportunity for choice by the creditors at the regular time had not been afforded, it was not error. for the referee to deny a request, not unanimous, for an adjournment of two weeks for the purpose of allowing the creditors to vote again. In re Goldstein (D. C., Mass.), 29 Am. B. R. 301, 199 Fed. 665. In re Nice & Schreiber (D. C., Pa.), 10 Am. B. R. 639, 123 Fed. 987, it was expressly held that the first meeting of creditors may be continued by proper and reasonable adjournments so as to give the creditors every reasonable opportunity to exercise the been the understanding of our power conferred upon them to choose a trustee; so where a majority of the creditors both in number and amount ask for a reasonable postponement in order that the differences existing among the creditors may be disposed of their request should be granted. Where the bankrupt proposes an offer of composition at the first meeting of creditors, the referee, in a proper case, should postpone the choice and appointment of a trustee, to give opportunity for the filing of such proposed composition, and, if it is filed, should further postpone such choice and appointment until the entry of an order refusing to confirm such agreement. In re Rung Bros. (Ref., N. Y.), 2 Am. B. R. 620. 24. In re Sumner (D. C., N. Y.), 4 Am. B. R. 123, 101 Fed. 224; In re Malino (D. C., N. Y.), 8 Am. B. R. 205, 118 Fed. 368. The referee should proceed with the election where those who object to claims presented fail to file objections, or to offer evidence in support of those made orally. In re Syracuse Paper & Pulp Co. (D. C., N. Y.), 21 Am. B. R. 174, 164 Fed. 275. 25. See also Am. B. R. Dig, § 316. Federal courts.26 Judges and referees have ample power to prevent the appointment of incompetent or improper trustees by the discretion given them to determine who are creditors, coupled with their power to continue meetings and notify and bring in absent claimants, 28 27 (2) GROUNDS FOR DISAPPROVAL.-(I) In general. The approval or disapproval of the appointment of a trustee rests largely in the discretion of the judge or referee, depending upon circumstances dealing primarily with the competency of the person selected and conditions under which he was selected.29 The purpose of the statute is to secure the election of a "competent" person as trustee; any determination by the referee that a person was prejudiced in favor of the bankrupt, or that fraud might result, should be respected and sustained if the evidence is sufficient. The choice of the creditors is entitled to consideration and should not be overruled without substantial reasons. The court or referee should permit free expression of the creditors' will and should not arbitrarily exercise the power of disapproval.31 The election of a trustee by the creditors is not to be disapproved, unless there is good reason for believing that the election has been directed, managed, or controlled by the bankrupt or his attorney, or by some influence opposed to the creditors' interests.32 A further discussion as to the personal disqualifications of the trustee will be found under § 45, post. 30 26. In re Eastlack (D. C., N. J.), 16 Am. B. R. 529, 145 Fed. 68; In re Lewensohn (D. C., N. Y.), 3 Am. B. R. 299, 98 Fed. 576; In re Rekersdres (D. C., N. Y.), 5 Am. B. R. 811, 108 Fed. 206; Falter v. Reinhard (D. C., Ohio), 4 Am. B. R. 782, 104 Fed. 292, on review in C. C. A. In re McGill (C. C. A., 6th Cir.), 5 Am. B. R. 155, 106 Fed. 57; In re Kreuger (D. C., Ky.), 27 Am. B. R. 440, 196 Fed. 705; Kiser Co. v. Georgia Cotton Oil Co. (C. C. A., 5th Cir.), 31 Am. B. R. 376, 208 Fed. 548. 27. See Bankr. Act, §§ 56, 57 and 63; General Order XXI. 28. The election will be set aside and a new election ordered where a creditor has not been notified of the meeting, although the court had determined that he was entitled to participate in the proceedings. In re Evening Standard Pub. Co. (D. C., N. Y.), 21 Am. B. R. 156, 164 Fed. 517. 33 29. Matter of Wilson (D. C., Mass.), 37 Am. B. R. 513, affd. 39 Am. B. R. 419, 242 Fed. 479; Matter of Rosenfeld-Goldman Co. (D. C., Mass.), 36 Am. B. R. 520, 228 Fed. 921, holding that rights of creditors in the selection of a trustee are important, but the decision as to the selection ought to rest largely with the referee. 30. Bollman v. Tobin (C. C. A., 8th Cir.), 38 Am. B. R. 504, 239 Fed. 469; Matter of Merritt Construction Co. (C. C. A., 2d Cir.), 33 Am. B. R. 616, 219 Fed. 555. 31. Wilson v. Continental Building & Loan Assn. (C. C. A., 9th Cir.), 37 Am. B. R. 444, 232 Fed. 824. 32. In re Eastlack (D. C., N. J.), 16 Am. B. R. 529, 145 Fed. 68; In re Lloyd (D. C., Wis.), 17 Am. B. R. 96, 148 Fed. 92. 33. See under section 45, post, subtitle "Disqualifications." (II) Undue activity of bankrupt.- It is well settled by all the authorities that the trustee represents the creditors, and not the bankrupt, in the administration of the estate; and that it is improper that the bankrupt shall actively interfere with the matter of his selection and appointment; and that, if he does interfere and the person aided by him is appointed by votes procured by such interference, the appointment should for that reason be disapproved." The question as to whether there is collusion with the bankrupt 34. In re Wetmore, Fed. Cas. No. 17,466; In re Bliss Fed. Cas. No. 1,543; Falter v. Reinhard (D. C., Ohio), 4 Am. B. R. 782, 104 Fed. 292; In re McGill (C. C. A., 6th Cir.), 5 Am. B. R. 155, 106 Fed. 57; In re Hanson (D. C., Minn.), 19 Am. B. R. 235, 156 Fed. 417; In re Ployd (D. C., Pa.), 25 Am. B. R. 194, 183 Fed. 791. Matter of Rothleder (D. C., N. Y.), 37 Am. B. R. 116, 232 Fed. 398. The bene-ficiaries are not the bankrupt, but the creditors. For that reason the law gives to them alone the choice of trustee; the bankrupt has no part in it because presumably he has no interest in it. In re Lewensohn (D. C., N. Y.), 3 Am. B. R. 299, 98 Fed. 576. The trustee should not be nominated in fact by the bankrupt or his attorney, because he must be free from all entangling alliances or associations that might in any way control his independence and responsibilities. In re Rekersdres (D. C., N. Y.), 5 Am. B. R. 811, 108 Fed. 206. Where it appears that the election was a close one, that the person elected received the votes of bankrupt's counsel, brother-in-law and clerk, that, upon objections of the bankrupt, claims, which would have made such selection impossible, were thrown out and it was evident that the person selected had received advance information from the bankrupt that the petition had been filed and who were the general creditors, and, undoubtedly upon the suggestion of the bankrupt or his attorney, had immediately become a candidate for trustee and actively engaged in sending out letters to creditors of the bankrupt, soliciting their claims, his election will be set aside. In re Ployd (D. C., Pa.), 25 Am. B. R. 194, 183 Fed. 791. Bankrupt had an estate of only $3,500, to be divided, after paying expenses, amongst creditors having claims aggregating $9,000, over $7,000 of which were claims said to be owing to near relatives of the bankrupt or members of the family. One of the bankrupt's attorneys presented the claims of and had powers of attorney from about 80 per cent of these claimants at the first meeting of creditors, thus controlling the appointment of the trustee and he insisted, over the objection of the other creditors upon the selection of an attorney as trustee, who had an office in the building occupied by bankrupt's attorneys. It was held that the referee was justified in disapproving as contrary to public policy, a selection which would allow the bankrupt and his relatives to administer the estate. In re Sitting (D. C., N. Y.), 25 Am. B. R. 682, 182 Fed. 917. Canvassing of creditors to secure votes. The trustee appointed by the referee, after his election by a majority of creditors, both in number and amount, had offices in the same suite as bankrupt's attorney and the evidence showed that he had prior to the filing of the schedules, solicited votes on claims, a number of claims having should be definitely disposed of before the appointment, and if there is reasonable grounds for the belief that such collusion exists the referee may decline to approve the election.35 However high the character of a proposed trustee may be, the active interference of been sworn to before him as a notary. It was held, that while the practice of soliciting votes was to be condemned as it did not appear that the selection of the trustee was in the interest of the bankrupt in order to control the administration of the estate for her benefit without regard for the interests of creditors, the appointment should be confirmed. Matter of Fisher (D. C., Pa.), 26 Am. B. R. 793, 193 Fed. 104. The votes of creditors for trustees cast upon proxies solicited by the bankrupt are properly rejected. In re Machin & Brown (D. C., Pa.), 11 Am. B. R. 449, 128 Fed. 315. Where the creditors, all of whom had proved their claims and were unpreferred, had received 100 per cent, the fact that some of them voted for a new trustee at the bankrupt's solicitation is not sufficient to disturb the appointment, the court being satisfied that the person selected will make a suitable trustee and that the bankrupt's solicitation for votes was not by way of improper inducement. In re Morton (D. C., Mass.), 9 Am. B. R. 508, 118 Fed. 908. The election of an apparently competent and indifferent person approved by the referee, sustained, against an objection that the election was the result of a conspiracy between the attorney for a majority of the creditors and an officer of the bankrupt. In re Ketterer Manf'g Co. (D. C., Pa.), 19 Am. B. R. 225, 155 Fed. 987. Where one of three directors of a corporation, who was also its president, treasurer, clerk and manager, favored a composition and reorganization, and the receiver in bankruptcy and the other directors favored adjudication, and both factions went beyond what was proper in soliciting claims 60 as to control the election of the trustee, the claims of the president should not be disfranchised and the other claims allowed to be voted, where his plan does not appear to have involved any fraud. Matter of Parsons Mfg. Co. (D. C., Mass.), 39 Am. B. R. 858, 247 Fed. 126. Furnishing list of creditors before filing schedules.- Where, upon the review of an order appointing a trustee whose election was alleged to have been procured by his action in securing the proofs and votes of certain creditors by means of a list of creditors which he solicited from the bankrupt before the filing of the schedules, it is found as a fact that, acting entirely in behalf of creditors, he requested the list of creditors without the solicitation of the bankrupt or for its benefit, and that his action and that of others in procuring claims and voting the same was justifiable, the order of appointment as trustee will not be disturbed. Matter of James H. Turner & Co. (Ref., Mass.), 20 Am. B. R. 646, dist'g In re Lloyd, 17 Am. B. R. 96, 148 Fed. 92, which held that no attorney should be permitted to vote any claim on the choice of trustee, that has come to him through the instrumentality of the bankrupt, in furnishing him with a list of the creditors before the schedules are filed, but the attorney is not disqualified from voting upon the claims of other creditors who employed him in the regular way and had no concern with the bankrupt in the matter. 35. In re Dayville Woolen Co. (D.. C., Conn.), 8 Am. B. R. 85, 114 Fed. 674, holding that, upon the refusal the bankrupt in his favor will render him ineligible for appointment, and such appointment will for that reason be disapproved.36 This does not prevent the appointment of a person who is acceptable to the bankrupt. It is the activity of the bankrupt in bringing about the selection that is prohibited.37 The creditors of a bankrupt corporation should be permitted to vote for a trustee without interference from its officers.38 (3) EFFECT OF DISAPPROVAL.-A referee cannot ignore the appointment of a trustee by creditors and proceed summarily to appoint without holding another election. If he disapproves of the appointment it is his duty to make an order in writing to that effect, and direct that another meeting be held to fill the vacancy.3 A trustee elected by creditors does not take office until his selection is approved, and until that time there is a vacancy which may only be filled by the creditors.40 of counsel for a majority of the creditors, who had been attorney for the bankrupt, to answer whether any of the claims attempted to be devoted by him for trustee were held in the interest of the bankrupt, it is the duty of the referee to put the question and permit a full investigation into the relations of the attorney to the bankrupt and the creditors, and if there appears to be reasonable cause to believe any such collusion exists, the referee should either decline to receive the collusive votes or to approve the election. 36. In re Hanson (D. C., Minn.), 19 Am. B. R. 235, 156 Fed. 717; In re Kreuger (D. C., Ky.), 27 Am. B. R. 440, 96 Fed. 705. Interest of bankrupt or others in his behalf. Neither the bankrupt himself, nor his attorney, nor any assignee nor his attorney can be permitted to control the selection of a trustee. If creditors knowingly join with such parties in an effort to elect a trustee, the remedy is to reject their selection and permit the creditors who are not in the combination to make the selection. Matter of Stowe (D. C., Cal.), 38 Am. B. R. 76, 235 Fed. 463. 37. In re Eastlack (D. C., N. J.), 39 16 Am. B. R. 529, 145 Fed. 68; In re Ployd (D. C., Pa.), 25 Am. B. R. 194, 183 Fed. 791; In re Walker & Co. (D. C., Ala.), 29 Am. B. R. 499, 204 Fed. 132. 38. In re Day & Co. (D. C., N. Y), 23 Am. B. R. 56, 174 Fed. 164, holding that, where the election of a trus tee for a bankrupt corporation has been caused by the interference of its officers, an order will be entered declaring that there was a failure to elect a trustee, and ordering a new election. 39. In re Lewensohn (D. C., N. Y.), 3 Am. B. R. 299, 98 Fed. 576; In re Mackellar (D. C., Pa.), 8 Am. B. R. 669, 116 Fed. 547; In re Mangan (D. C., Pa.), 13 Am. B. R. 303, 133 Fed. 1,000; In re Hare (D. C., N. Y.), 9 Am. B. R. 520, 119 Fed. 246; In re Van DeMark (D. C., N. Y.), 23 Am. B. R. 760, 175 Fed. 287; In re Margolies (D. C., N. Y.), 27 Am. B. R. 398, 191 Fed. 369. 40. Matter of Clay (C. C. A., 1st Cir.), 27 Am. B. R. 715, 192 Fed. 830. Vacancy created. The effect of the disapproval by a referee of the person first selected by creditors as trustee is to vacate the election, not to throw out the votes for the person elected |