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May 12, 1978

In the Matter of the BOHACK CORPORATION, Debtor

The opinion of the court was delivered by: MISHLER

Memorandum of Decision and Order

The Creditors' Committee (the "Committee") of the Bohack Corporation ("Bohack") and Joseph Binder, a former officer of Bohack, appeal from the orders of Bankruptcy Judge Albert Parente entered on February 3 and February 24, 1978.

On July 30, 1974, Bohack filed a petition for an arrangement pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 Et seq. Thereafter, a plan of arrangement was formulated by Bohack, and the Committee is currently conducting an investigation of the debtor's financial condition to assist the court in determining whether the proposed plan is feasible and in the best interest of the creditors. In connection with this investigation, several of Bohack's employees have been examined by counsel for the Committee.

 Upon application of the Committee, the bankruptcy court ordered the examination of Joseph Binder pursuant to Section 21a of the Bankruptcy Act, 11 U.S.C. § 44(a). *fn1" Binder was the President of Bohack when the petition was filed and served in that capacity through the spring of 1976. On August 9, 1977, Binder appeared for examination; when asked by counsel for the Committee whether he was President of Bohack, he refused to respond, asserting his Fifth Amendment privilege against self-incrimination. By opinion and order dated February 3, 1978, Judge Parente ordered Binder to answer the propounded question, finding that the response could not possibly tend to incriminate him. The examination resumed on February 24, 1978. Once again, Binder declined on Fifth Amendment grounds to answer this question, along with a series of other questions posed by counsel for the Committee. Judge Parente sustained the witness's refusal to answer thirty-five questions; with respect to the remaining twenty-five, he ordered the witness to respond on the basis that the demanded information would not tend to incriminate him.

 Both parties now appeal from these orders. The Committee appeals from the February 24th rulings which sustained Binder's assertions of the constitutional privilege. Binder appeals from both the February 3rd order and the February 24th rulings which rejected his claims of self-incrimination. In support of his refusal to testify, Binder argues that he is the target of criminal investigations presently conducted by the SEC and the United States Attorney's office for the Eastern District of New York, and that disclosure of the information sought by the Committee would furnish evidence that might be used against him in these criminal proceedings. The Committee's position is that Binder should be designated to perform the duties of the debtor pursuant to Section 7b of the Bankruptcy Act, 11 U.S.C. § 25(b), and thereby granted the immunity of Section 7a(10) of the Act, 11 U.S.C. § 25(a)(10). Since the immunity afforded by the latter provision is coextensive with the scope of the privilege, United States v. Dornau, 491 F.2d 473, 480 (2d Cir. 1974), Binder may no longer refuse to testify on Fifth Amendment grounds.


 We agree with the Committee that Binder should be designated under Section 7b to perform the duties of the debtor and thereby compelled to testify under the protective immunity of Section 7a(10). This procedure is fully consonant with, and would best implement, the Congressional policy which underlies the statutory grant of immunities to bankrupts: to encourage a full disclosure of the affairs of the debtor and thereby insure a proper administration of the estate, whether the goal be distribution or, as in the instant proceedings, rehabilitation. *fn2"

 Section 7a of the Act, 11 U.S.C. § 25(a), outlines the duties of a bankrupt; relevant to this appeal is the obligation imposed by subdivision (10), which provides in pertinent part:

The bankrupt shall at the first meeting of his creditors . . . And at such other times as the court shall order, submit to an examination concerning the conducting of his bankruptcy, his dealings with his creditors and other persons, the amount, kind and whereabout of his property, and, in addition, all matters which may affect the administration and settlement of his estate . . . ; but no testimony, or any evidence which is directly or indirectly derived from such testimony, given by him shall be offered in evidence against him in any criminal proceeding. . . . (emphasis added).

 Where the bankrupt is a corporation, "its officers, . . . directors, . . . stockholders, or such of them as may be designated by the court, shall perform the duties imposed upon the bankrupt." Section 7b, 11 U.S.C. § 25(b). These duties include the obligation to submit to examinations ordered pursuant to section 7a(10), and, like the individual bankrupt, the corporate representative is entitled to the immunity granted by that section. United States v. Castellana, 349 F.2d 264, 273-74 (2d Cir. 1965); United States v. Weissman, 219 F.2d 837, 841 (2d Cir. 1955).

 The fact that Binder is a former officer of Bohack does not render him ineligible for designation under 7b. Rather, the significant point is that Binder served in that position of authority during the period under investigation. One of the major objectives of the Committee's examination was to determine why Bohack suffered massive inventory losses between 1974 and 1975; as a fiduciary of the debtor during these critical years, Binder would obviously have valuable information with respect to this inquiry. Examinations of a bankrupt's affairs will ordinarily concern transactions that occurred prior to the filing of the petition, See 1A Collier on Bankruptcy 1016 (4th ed. 1976), and thus where the bankrupt is a corporation, only Former officers and directors would have the direct knowledge sought by a 7a(10) examination. This observation was recently made in THC Financial Corp., 446 F. Supp. 1337 (D.Hawaii 1978), where the court in a Chapter X reorganization proceeding granted a trustee's application to designate a former officer and director to perform the duties of the debtor pursuant to 7b:

The purpose of those provisions is to find out what occurred to bring the corporation into a bankruptcy condition. If former directors and officers may not be required to testify for the corporation there would almost certainly be large gaps in the information gathered. Where a Chapter X trustee has been appointed there normally will in fact be No officers and directors still serving as such, they will All be "former." If such "former" fiduciaries could not be required to testify, the provisions in question would be rendered nugatory at the very moment when Congress must have intended that they apply in strictest fashion. Such a result is absurd; therefore such an interpretation cannot be correct. Bankruptcy law will not be given to so limiting a construction as to permit evasion of its purpose. Id. at 1338.

 See also Greene v. Harris, 240 F.2d 275 (2d Cir. 1957) (de facto president who resigned his office two weeks prior to corporation's bankruptcy was ordered to perform the duties of the bankrupt); In re Bell Refrigeration Corp., 169 F. Supp. 62 (N.D.Ohio 1958) (former officer who held his position when Chapter XI petition was filed must submit to examination in hearing upon creditors' objections to confirmation of the plan of arrangement); In re Totem Lodge and Country Club, 134 F. Supp. 158 (S.D.N.Y.1955) (former officer and director and sole stockholder when the corporation was adjudicated bankrupt held to be eligible for designation under 7b). *fn3"

 Finally, once designated to perform the duties of the debtor under 7b, Binder will be entitled to the immunity provided by 7a(10) notwithstanding the fact that his examination was ordered pursuant to Section 21a ...

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