11 U.S.C. § 543 — Turnover of property by a custodian

Page 166 TITLE 11—BANKRUPTCY § 543 the same effect as to the entity making such transfer or payment as if the case under this title concerning the debtor had not been com- menced. (d) A life insurance company may transfer property of the estate or property of the debtor to such company in good faith, with the same ef- fect with respect to such company as if the case under this title concerning the debtor had not been commenced, if such transfer is to pay a premium or to carry out a nonforfeiture insur- ance option, and is required to be made auto- matically, under a life insurance contract with such company that was entered into before the date of the filing of the petition and that is property of the estate. (e) Subject to any applicable privilege, after notice and a hearing, the court may order an at- torney, accountant, or other person that holds recorded information, including books, docu- ments, records, and papers, relating to the debtor’s property or financial affairs, to turn over or disclose such recorded information to the trustee. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98–353, title III, § 457, July 10, 1984, 98 Stat. 376; Pub. L. 103–394, title V, § 501(d)(16), Oct. 22, 1994, 108 Stat. 4146.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 542(a) of the House amendment modifies simi- lar provisions contained in the House bill and the Sen- ate amendment treating with turnover of property to the estate. The section makes clear that any entity, other than a custodian, is required to deliver property of the estate to the trustee or debtor in possession whenever such property is acquired by the entity dur- ing the case, if the trustee or debtor in possession may use, sell, or lease the property under section 363, or if the debtor may exempt the property under section 522, unless the property is of inconsequential value or ben- efit to the estate. This section is not intended to re- quire an entity to deliver property to the trustee if such entity has obtained an order of the court author- izing the entity to retain possession, custody or control of the property. The House amendment adopts section 542(c) of the House bill in preference to a similar provision con- tained in section 542(c) of the Senate amendment. Pro- tection afforded by section 542(c) applies only to the transferor or payor and not to a transferee or payee re- ceiving a transfer or payment, as the case may be. Such transferee or payee is treated under section 549 and sec- tion 550 of title 11. The extent to which the attorney client privilege is valid against the trustee is unclear under current law and is left to be determined by the courts on a case by case basis. SENATE REPORT NO. 95–989 Subsection (a) of this section requires anyone holding property of the estate on the date of the filing of the petition, or property that the trustee may use, sell, or lease under section 363, to deliver it to the trustee. The subsection also requires an accounting. The holder of property of the estate is excused from the turnover re- quirement of this subsection if the property held is of inconsequential value to the estate. However, this pro- vision must be read in conjunction with the remainder of the subsection, so that if the property is of incon- sequential monetary value, yet has a significant use value for the estate, the holder of the property would not be excused from turnover. Subsection (b) requires an entity that owes money to the debtor as of the date of the petition, or that holds money payable on demand or payable on order, to pay the money to the order of the trustee. An exception is made to the extent that the entity has a valid right of setoff, as recognized by section 553. Subsection (c) provides an exception to subsections (a) and (b). It protects an entity that has neither actual notice nor actual knowledge of the case and that trans- fers, in good faith, property that is deliverable or pay- able to the trustee to someone other than to the estate or on order of the estate. This subsection codifies the result of Bank of Marin v. England, 385 U.S. 99 (1966), but does not go so far as to permit bank setoff in violation of the automatic stay, proposed 11 U.S.C. 362(a)(7), even if the bank offsetting the debtor’s balance has no knowledge of the case. Subsection (d) protects life insurance companies that are required by contract to make automatic premium loans from property that might otherwise be property of the estate. Subsection (e) requires an attorney, accountant, or other professional that holds recorded information re- lating to the debtor’s property or financial affairs, to surrender it to the trustee. This duty is subject to any applicable claim of privilege, such as attorney-client privilege. It is a new provision that deprives account- ants and attorneys of the leverage that they have today, under State law lien provisions, to receive pay- ment in full ahead of other creditors when the informa- tion they hold is necessary to the administration of the estate. Editorial Notes AMENDMENTS 1994—Subsec. (e). Pub. L. 103–394 substituted ‘‘to’’ for ‘‘to to’’ after ‘‘financial affairs,’’. 1984—Subsec. (e). Pub. L. 98–353 inserted ‘‘to turn over or’’ before ‘‘disclose’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment 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. § 543. Turnover of property by a custodian (a) A custodian with knowledge of the com- mencement of a case under this title concerning the debtor may not make any disbursement from, or take any action in the administration of, property of the debtor, proceeds, product, off- spring, rents, or profits of such property, or property of the estate, in the possession, cus- tody, or control of such custodian, except such action as is necessary to preserve such property. (b) A custodian shall— (1) deliver to the trustee any property of the debtor held by or transferred to such custo- dian, or proceeds, product, offspring, rents, or profits of such property, that is in such custodian’s possession, custody, or control on the date that such custodian acquires knowl- edge of the commencement of the case; and (2) file an accounting of any property of the debtor, or proceeds, product, offspring, rents, or profits of such property, that, at any time, Page 167 TITLE 11—BANKRUPTCY § 544 came into the possession, custody, or control of such custodian. (c) The court, after notice and a hearing, shall— (1) protect all entities to which a custodian has become obligated with respect to such property or proceeds, product, offspring, rents, or profits of such property; (2) provide for the payment of reasonable compensation for services rendered and costs and expenses incurred by such custodian; and (3) surcharge such custodian, other than an assignee for the benefit of the debtor’s credi- tors that was appointed or took possession more than 120 days before the date of the fil- ing of the petition, for any improper or exces- sive disbursement, other than a disbursement that has been made in accordance with appli- cable law or that has been approved, after no- tice and a hearing, by a court of competent ju- risdiction before the commencement of the case under this title. (d) After notice and hearing, the bankruptcy court— (1) may excuse compliance with subsection (a), (b), or (c) of this section if the interests of creditors and, if the debtor is not insolvent, of equity security holders would be better served by permitting a custodian to continue in pos- session, custody, or control of such property, and (2) shall excuse compliance with subsections (a) and (b)(1) of this section if the custodian is an assignee for the benefit of the debtor’s creditors that was appointed or took posses- sion more than 120 days before the date of the filing of the petition, unless compliance with such subsections is necessary to prevent fraud or injustice. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98–353, title III, § 458, July 10, 1984, 98 Stat. 376; Pub. L. 103–394, title V, § 501(d)(17), Oct. 22, 1994, 108 Stat. 4146.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 543(a) is a modification of similar provisions contained in the House bill and the Senate amendment. The provision clarifies that a custodian may always act as is necessary to preserve property of the debtor. Sec- tion 543(c)(3) excepts from surcharge a custodian that is an assignee for the benefit of creditors, who was ap- pointed or took possession before 120 days before the date of the filing of the petition, whichever is later. The provision also prevents a custodian from being sur- charged in connection with payments made in accord- ance with applicable law. SENATE REPORT NO. 95–989 This section requires a custodian appointed before the bankruptcy case to deliver to the trustee and to ac- count for property that has come into his possession, custody, or control as a custodian. ‘‘Property of the debtor’’ in section (a) includes property that was prop- erty of the debtor at the time the custodian took the property, but the title to which passed to the custo- dian. The section requires the court to protect any ob- ligations incurred by the custodian, provide for the payment of reasonable compensation for services ren- dered and costs and expenses incurred by the custodian, and to surcharge the custodian for any improper or ex- cessive disbursement, unless it has been approved by a court of competent jurisdiction. Subsection (d) rein- forces the general abstention policy in section 305 by permitting the bankruptcy court to authorize the cus- todianship to proceed notwithstanding this section. Editorial Notes AMENDMENTS 1994—Subsec. (d)(1). Pub. L. 103–394 struck out comma after ‘‘section’’. 1984—Subsec. (a). Pub. L. 98–353, § 458(a), inserted ‘‘, product, offspring, rents, or profits’’ after ‘‘pro- ceeds’’. Subsec. (b)(1). Pub. L. 98–353, § 458(b)(1), inserted ‘‘held by or’’ after ‘‘debtor’’, and ‘‘, product, offspring, rents, or profits’’ after ‘‘proceeds’’. Subsec. (b)(2). Pub. L. 98–353, § 458(b)(2), inserted ‘‘, product, offspring, rents, or profits’’ after ‘‘pro- ceeds’’. Subsec. (c)(1). Pub. L. 98–353, § 458(c)(1), inserted ‘‘or proceeds, product, offspring, rents, or profits of such property’’ after ‘‘property’’. Subsec. (c)(3). Pub. L. 98–353, § 458(c)(2), inserted ‘‘that has been’’ before ‘‘approved’’. Subsec. (d). Pub. L. 98–353, § 458(d), designated exist- ing provisions as par. (1) and added par. (2). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment 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. § 544. Trustee as lien creditor and as successor to certain creditors and purchasers (a) The trustee shall have, as of the com- mencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obliga- tion incurred by the debtor that is voidable by— (1) a creditor that extends credit to the debt- or at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple con- tract could have obtained such a judicial lien, whether or not such a creditor exists; (2) a creditor that extends credit to the debt- or at the time of the commencement of the case, and obtains, at such time and with re- spect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or (3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists. (b)(1) Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation in- curred by the debtor that is voidable under ap-