Opinion
No. 78 B 491
May 22, 1979
Duties of Corporate Bankrupt — Designation of Officer — Conflict with Federal Criminal Prosecution
The designation of a corporate bankrupt's former vice-president to perform the duties of a bankrupt was withheld, where such action could have aborted a federal criminal prosecution of the designated corporate officer.
Pursuant to Section 7b of the Bankruptcy Act, a Chapter XI receiver applied for an order designating a former vice-president and director of the debtor to perform the duties of a "bankrupt" under Section 7a (1) of the Bankruptcy Act. This would include a duty to submit to a Bankruptcy Rule 205 examination concerning the conduct of the business of the debtors and other matters affecting the administration and settlement of the debtor's estates. The critical issue presented to the court was whether the designation should be withheld, since it could impermissibly provide sufficient "taint" to deter, or or abort, a possible criminal prosecution of the officer by the United States.
Section 7a(10) accords to a bankrupt, or one designated as a bankrupt, automatic use and derivative use immunity for any statements made. By designating the debtors' vice-president, noted the court, any subsequent criminal prosecution could be tainted by his immersion in an "immunity bath" by the simple expedient of his disgorging any possible action he may have participated in which would render him criminally culpable. The United States Attorney indicated to the court that he opposed the granting of immunity to the officer on the ground that it could ultimately hamper a criminal prosecution of the officer. Thus, the court was faced with the competing interests of the administration of the debtors' estate and the public interest in the preservation of criminal prosecutions. The court also noted that the receiver could not resort to the designation of another person, since the only other possible designee was in a similar situation. Thus, reasoning that the interest of the creditors should bow to the public interest, the court denied the application to designate the debtor's former vicepresident. See Secs. 7a(10) [§ 343] at ¶ 8403 and 7b at ¶ 2107.