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To Be, Rather Than to Seem: Analysis of Trustee Fiduciary Duty in Reorganization and Its Implications on the New Chinese Bankruptcy Law

Charlie Xiao-chuan Weng
The International Lawyer
Vol. 45, No. 2 (SUMMER 2011), pp. 647-671
Published by: American Bar Association
Stable URL: http://www.jstor.org/stable/23824632
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
To Be, Rather Than to Seem: Analysis of Trustee Fiduciary Duty in Reorganization and Its Implications on the New Chinese Bankruptcy Law
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Abstract

Reorganization trustees play a crucial role in bankruptcy procedure. The trustees try to resurrect deteriorating businesses by managing remaining resources for the benefit of beneficiaries, usually unsecured creditors, and shareholders. More or less, a trustee's role is similar to that of the officers or managers of a solvent company. Fiduciary duty arises between the residual claimers and the stakeholders on one hand, and the operator and the trustee on the other hand. Astonishingly, under current U.S. bankruptcy law, the reorganization trustee's fiduciary duty is not well defined, although this duty has been widely litigated. The vagueness is primarily due to misinterpretation of the Mosser case, adjudicated by the U.S. Supreme Court. Fortunately, multitudes of academic literature on fiduciary duty in corporate law explain the application issues and clarify the vagueness of trustee fiduciary duty. But fiduciary duty is highly context-specific. Corporate fiduciary duty cannot be arbitrarily applied to the bankruptcy context without necessary modification. In China, the unclear definition of the trustee fiduciary duty has greatly dampened the efficacy of the reorganization mechanism of the new bankruptcy law. Given the pressures of the current global financial crisis, it is imperative to amend the duty so it is more viable and practical. Given that the current Chinese reorganization mechanism is transplanted from U.S. bankruptcy regulation, retrospection to its origin is helpful in improving the trustee fiduciary duty. This article also explores the use of the case directive to facilitate the adaptation and increase the flexibility of such duty in practice.

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