collective rights and interests are represented by the trustee who stands in a fiduciary capacity as such representative. He cannot delegate his duties to a committee.
'I am convinced that the trustee has so executed his duties as to require the Court to remove him or to permit him to resign. * * * '
No question can be raised against the opinion of Judge Avis as expressed above. It amply demonstrated that a conflict of interests actually existed between the Committee and the Indenture Trustee.
In such a situation the United States Supreme Court has held that compensation may not be awarded. In the case of Woods v. City Bank Co., 312 U.S. 262, 61 S. Ct. 493, 85 L. Ed. 820, that Court made the following cogent comments:
'The indenture trustee represents all the bondholders; the committee those who have given it authorizations -- in this case about 50 per cent. Where the interests of majorities and minorities do not coincide, the interests of the indenture trustee and the committee will tend to be antagonistic. Beyond that is the fact that an indenture trustee closely affiliated with a committee shares the committee's conflicts of interest.' 312 U.S.at pages 266, 267, 61 S. Ct.at page 496, 85 L. Ed. 820.
'Where a claimant, who represented members of the investing public, was serving more than one master or was subject to conflicting interests, he should be denied compensation. It is no answer to say that fraud or unfairness were not shown to have resulted. * * * Where an actual conflict of interest exists, no more need be shown in this type of case to support a denial of compensation.' 312 U.S.at page 268, 61 S. Ct.at page 497, 85 L. Ed. 820.
'Protective committees, as well as indenture trustees, are fiduciaries. (Cases cited.) A fiduciary who represents security holders in a reorganization may not perfect his claim to compensation by insisting that, although he had conflicting interests, he served his several masters equally well or that his primary loyalty was not weakened by the pull of his secondary one. Only strict adherence to these equitable principles can keep the standard of conduct for fiduciaries 'at a level higher than that trodden by the crowd.' See Mr. Justice Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546, 62 A.L.R. 1.' 312 U.S.at pages 268, 269, 61 S. Ct.at page 497, 85 L. Ed. 820.
Since the Committee was the controlling instrumentality that caused the conduct of Indenture Trustee Nestel to be considered incompatible with his fiduciary relationship and since the Committee itself was chargeable as a fiduciary, it follows that its claim for services up to the time of removal of Indenture Trustee Nestel must be denied.
The other point upon which the Securities and Exchange Commission objects concerns disbursements made by the Committee in the aggregate sum of $ 11,685.49. Included in this amount were three items, namely:
Payroll of clerical staff $ 7,406.88
Office Rent 2,581.07
Total $ 10,590.02
© 1992-2004 VersusLaw Inc.