§ 77jjj. — Eligibility and disqualification of trustee.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC77jjj]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2A--SECURITIES AND TRUST INDENTURES
SUBCHAPTER III--TRUST INDENTURES
Sec. 77jjj. Eligibility and disqualification of trustee
(a) Persons eligible for appointment as trustee
(1) There shall at all times be one or more trustees under every
indenture qualified or to be qualified pursuant to this subchapter, at
least one of whom shall at all times be a corporation organized and
doing business under the laws of the United States or of any State or
Territory or of the District of Columbia or a corporation or other
person permitted to act as trustee by the Commission (referred to in
this subchapter as the institutional trustee), which (A) is authorized
under such laws to exercise corporate trust powers, and (B) is subject
to supervision or examination by Federal, State, Territorial, or
District of Columbia authority. The Commission may, pursuant to such
rules and regulations as it may prescribe, or by order on application,
permit a corporation or other person organized and doing business under
the laws of a foreign government to act as sole trustee under an
indenture qualified or to be qualified pursuant to this subchapter, if
such corporation or other person (i) is authorized under such laws to
exercise corporate trust powers, and (ii) is subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or
examination applicable to United States institutional trustees. In
prescribing such rules and regulations or making such order, the
Commission shall consider whether under such laws, a United States
institutional trustee is eligible to act as sole trustee under an
indenture relating to securities sold within the jurisdiction of such
foreign government.
(2) Such institution \1\ trustee shall have at all times a combined
capital and surplus of a specified minimum amount, which shall not be
less than $150,000. If such institutional trustee publishes reports of
condition at least annually, pursuant to law or to the requirements of
said supervising or examining authority, the indenture may provide that,
for the purposes of this paragraph, the combined capital and surplus of
such trustee shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
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\1\ So in original. Probably should be ``institutional''.
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(3) If the indenture to be qualified requires or permits the
appointment of one or more co-trustees in addition to such institutional
trustee, the rights, powers, duties, and obligations conferred or
imposed upon the trustees or any of them shall be conferred or imposed
upon and exercised or performed by such institutional trustee, or such
institutional trustee and such co-trustees jointly, except to the extent
that under any law of any jurisdiction in which any particular act or
acts are to be performed, such institutional trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties, and obligations shall be exercised and
performed by such co-trustees.
(4) In the case of certificates of interest or participation, the
indenture trustee or trustees shall have the legal power to exercise all
of the rights, powers, and privileges of a holder of the security or
securities in which such certificates evidence an interest or
participation.
(5) No obligor upon the indenture securities or person directly or
indirectly controlling, controlled by, or under common control with such
obligor shall serve as trustee upon such indenture securities.
(b) Disqualification of trustee
If any indenture trustee has or shall acquire any conflicting
interest as hereinafter defined--
(i) then, within 90 days after ascertaining that it has such
conflicting interest, and if the default (as defined in the next
sentence) to which such conflicting interest relates has not been
cured or duly waived or otherwise eliminated before the end of such
90-day period, such trustee shall either eliminate such conflicting
interest or, except as otherwise provided below in this subsection,
resign, and the obligor upon the indenture securities shall take
prompt steps to have a successor appointed in the manner provided in
the indenture;
(ii) in the event that such trustee shall fail to comply with
the provisions of clause (i) of this subsection, such trustee shall,
within 10 days after the expiration of such 90-day period, transmit
notice of such failure to the indenture security holders in the
manner and to the extent provided in subsection (c) of section 77mmm
of this title; and
(iii) subject to the provisions of subsection (e) of section
77ooo of this title, unless such trustee's duty to resign is stayed
as provided below in this subsection, any security holder who has
been a bona fide holder of indenture securities for at least six
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of such
trustee, and the appointment of a successor, if such trustee fails,
after written request thereof by such holder to comply with the
provisions of clause (i) of this subsection.
For the purposes of this subsection, an indenture trustee shall be
deemed to have a conflicting interest if the indenture securities are in
default (as such term is defined in such indenture, but exclusive of any
period of grace or requirement of notice) and--
(1) such trustee is trustee under another indenture under which
any other securities, or certificates of interest or participation
in any other securities, of an obligor upon the indenture securities
are outstanding or is trustee for more than one outstanding series
of securities, as hereafter defined, under a single indenture of an
obligor, unless--
(A) the indenture securities are collateral trust notes
under which the only collateral consists of securities issued
under such other indenture,
(B) such other indenture is a collateral trust indenture
under which the only collateral consists of indenture
securities, or
(C) such obligor has no substantial unmortgaged assets and
is engaged primarily in the business of owning, or of owning and
developing and/or operating, real estate, and the indenture to
be qualified and such other indenture are secured by wholly
separate and distinct parcels of real estate:
Provided, That the indenture to be qualified shall automatically be
deemed (unless it is expressly provided therein that such provision
is excluded) to contain a provision excluding from the operation of
this paragraph other series under such indenture, and any other
indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of
such an obligor are outstanding, if--
(i) the indenture to be qualified and any such other
indenture or indentures (and all series of securities issuable
thereunder) are wholly unsecured and rank equally, and such
other indenture or indentures (and such series) are specifically
described in the indenture to be qualified or are thereafter
qualified under this subchapter, unless the Commission shall
have found and declared by order pursuant to subsection (b) of
section 77eee of this title or subsection (c) of section 77ggg
of this title that differences exist between the provisions of
the indenture (or such series) to be qualified and the
provisions of such other indenture or indentures (or such
series) which are so likely to involve a material conflict of
interest as to make it necessary in the public interest or for
the protection of investors to disqualify such trustee from
acting as such under one of such indentures, or
(ii) the issuer shall have sustained the burden of proving,
on application to the Commission and after opportunity for
hearing thereon, that trusteeship under the indenture to be
qualified and such other indenture or under more than one
outstanding series under a single indenture is not so likely to
involve a material conflict of interest as to make it necessary
in the public interest or for the protection of investors to
disqualify such trustee from acting as such under one of such
indentures or with respect to such series;
(2) such trustee or any of its directors or executive officers
is an underwriter for an obligor upon the indenture securities;
(3) such trustee directly or indirectly controls or is directly
or indirectly controlled by or is under direct or indirect common
control with an underwriter for an obligor upon the indenture
securities;
(4) such trustee or any of its directors or executive officers
is a director, officer, partner, employee, appointee, or
representative of an obligor upon the indenture securities, or of an
underwriter (other than the trustee itself) for such an obligor who
is currently engaged in the business of underwriting, except that--
(A) one individual may be a director and/or an executive
officer of the trustee and a director and/or an executive
officer of such obligor, but may not be at the same time an
executive officer of both the trustee and of such obligor,
(B) if and so long as the number of directors of the trustee
in office is more than nine, one additional individual may be a
director and/or an executive officer of the trustee and a
director of such obligor, and
(C) such trustee may be designated by any such obligor or by
any underwriter for any such obligor, to act in the capacity of
transfer agent, registrar, custodian, paying agent, fiscal
agent, escrow agent, or depositary, or in any other similar
capacity, or, subject to the provisions of paragraph (1) of this
subsection, to act as trustee, whether under an indenture or
otherwise;
(5) 10 per centum or more of the voting securities of such
trustee is beneficially owned either by an obligor upon the
indenture securities or by any director, partner or executive
officer thereof, or 20 per centum or more of such voting securities
is beneficially owned, collectively by any two or more of such
persons; or 10 per centum or more of the voting securities of such
trustee is beneficially owned either by an underwriter for any such
obligor or by any director, partner, or executive officer thereof,
or is beneficially owned, collectively, by any two or more such
persons;
(6) such trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default as
hereinafter defined--
(A) 5 per centum or more of the voting securities, or 10 per
centum or more of any other class of security, of an obligor
upon the indenture securities, not including indentures \2\
securities and securities issued under any other indenture under
which such trustee is also trustee, or
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\2\ So in original. Probably should be ``indenture''.
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(B) 10 per centum or more of any class of security of an
underwriter for any such obligor;
(7) such trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default as
hereinafter defined, 5 per centum or more of the voting securities
of any person who, to the knowledge of the trustee, owns 10 per
centum or more of the voting securities of, or controls directly or
indirectly or is under direct or indirect common control with, an
obligor upon the indenture securities;
(8) such trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default as
hereinafter defined, 10 per centum or more of any class of security
of any person who, to the knowledge of the trustee, owns 50 per
centum or more of the voting securities of an obligor upon the
indenture securities;
(9) such trustee owns, on the date of default upon the indenture
securities (as such term is defined in such indenture but exclusive
of any period of grace or requirement of notice) or any anniversary
of such default while such default upon the indenture securities
remains outstanding, in the capacity of executor, administrator,
testamentary or inter vivos trustee, guardian, committee or
conservator, or in any other similar capacity, an aggregate of 25
per centum or more of the voting securities, or of any class of
security, of any person, the beneficial ownership of a specified
percentage of which would have constituted a conflicting interest
under paragraph (6), (7), or (8) of this subsection. As to any such
securities of which the indenture trustee acquired ownership through
becoming executor, administrator or testamentary trustee of an
estate which include them, the provisions of the preceding sentence
shall not apply for a period of not more than 2 years from the date
of such acquisition, to the extent that such securities included in
such estate do not exceed 25 per centum of such voting securities or
25 per centum of any such class of security. Promptly after the
dates of any such default upon the indenture securities and annually
in each succeeding year that the indenture securities remain in
default the trustee shall make a check of its holding of such
securities in any of the above-mentioned capacities as of such
dates. If the obligor upon the indenture securities fails to make
payment in full of principal or interest under such indenture when
and as the same becomes due and payable, and such failure continues
for 30 days thereafter, the trustee shall make a prompt check of its
holdings of such securities in any of the above-mentioned capacities
as of the date of the expiration of such 30-day period, and after
such date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the trustee, with sole or
joint control over such securities vested in it, shall be considered
as though beneficially owned by such trustee, for the purposes of
paragraphs (6), (7), and (8) of this subsection; or
(10) except under the circumstances described in paragraphs \3\
(1), (3), (4), (5) or (6) of section 77kkk(b) of this title, the
trustee shall be or shall become a creditor of the obligor.
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\3\ So in original. Probably should be ``paragraph''.
For purposes of paragraph (1) of this subsection, and of section
77ppp(a) of this title, the term ``series of securities'' or ``series''
means a series, class or group of securities issuable under an indenture
pursuant to whose terms holders of one such series may vote to direct
the indenture trustee, or otherwise take action pursuant to a vote of
such holders, separately from holders of another such series: Provided,
That ``series of securities'' or ``series'' shall not include any series
of securities issuable under an indenture if all such series rank
equally and are wholly unsecured.
The specification of percentages in paragraphs (5) to (9),
inclusive, of this subsection shall not be construed as indicating that
the ownership of such percentages of the securities of a person is or is
not necessary or sufficient to constitute direct or indirect control for
the purposes of paragraph (3) or (7) of this subsection.
For the purposes of paragraphs (6), (7), (8), and (9) of this
subsection--
(A) the terms ``security'' and ``securities'' shall include only
such securities as are generally known as corporate securities, but
shall not include any note or other evidence of indebtedness issued
to evidence an obligation to repay moneys lent to a person by one or
more banks, trust companies, or banking firms, or any certificate of
interest or participation in any such note or evidence of
indebtedness;
(B) an obligation shall be deemed to be in default when a
default in payment of principal shall have continued for thirty days
or more, and shall not have been cured; and
(C) the indenture trustee shall not be deemed the owner or
holder of (i) any security which it holds as collateral security (as
trustee or otherwise) for any obligation which is not in default as
above defined, or (ii) any security which it holds as collateral
security under the indenture to be qualified, irrespective of any
default thereunder, or (iii) any security which it holds as agent
for collection, or as custodian, escrow agent or depositary, or in
any similar representative capacity.
For the purposes of this subsection, the term ``underwriter'' when
used with reference to an obligor upon the indenture securities means
every person who, within one year prior to the time as of which the
determination is made, was an underwriter of any security of such
obligor outstanding at the time of the determination.
Except in the case of a default in the payment of the principal of
or interest on any indenture security, or in the payment of any sinking
or purchase fund installment, the indenture trustee shall not be
required to resign as provided by this subsection if such trustee shall
have sustained the burden of proving, on application to the Commission
and after opportunity for hearing thereon, that--
(i) the default under the indenture may be cured or waived
during a reasonable period and under the procedures described in
such application, and
(ii) a stay of the trustee's duty to resign will not be
inconsistent with the interests of holders of the indenture
securities. The filing of such an application shall automatically
stay the performance of the duty to resign until the Commission
orders otherwise.
Any resignation of an indenture trustee shall become effective only
upon the appointment of a successor trustee and such successor's
acceptance of such an appointment.
(c) Applicability of section
The Public Utility Holding Company Act of 1935 [15 U.S.C. 79 et
seq.] shall not be held to establish or authorize the establishment of
any standards regarding the eligibility and qualifications of any
trustee or prospective trustee under an indenture to be qualified under
this subchapter, or regarding the provisions to be included in any such
indenture with respect to the eligibility and qualifications of the
trustee thereunder, other than those established by the provisions of
this section.
(May 27, 1933, ch. 38, title III, Sec. 310, as added Aug. 3, 1939, ch.
411, 53 Stat. 1157; amended Pub. L. 101-550, title IV, Secs. 406-408,
Nov. 15, 1990, 104 Stat. 2723, 2724.)
References in Text
The Public Utility Holding Company Act of 1935, referred to in
subsec. (c), is act Aug. 26, 1935, ch. 687, title I, 49 Stat. 838, as
amended, which is classified generally to chapter 2C (Sec. 79 et seq.)
of this title. For complete classification of this Act to the Code, see
section 79 of this title and Tables.
Amendments
1990--Subsec. (a)(1). Pub. L. 101-550, Sec. 406(1)-(4), substituted
``There shall'' for ``The indenture to be qualified shall require that
there shall'', and ``under every indenture qualified or to be qualified
pursuant to this subchapter'' for ``thereunder'', inserted ``or a
corporation or other person permitted to act as trustee by the
Commission'' before ``(referred to'', and inserted at end ``The
Commission may, pursuant to such rules and regulations as it may
prescribe, or by order on application, permit a corporation or other
person organized and doing business under the laws of a foreign
government to act as sole trustee under an indenture qualified or to be
qualified pursuant to this subchapter, if such corporation or other
person (i) is authorized under such laws to exercise corporate trust
powers, and (ii) is subject to supervision or examination by authority
of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to
United States institutional trustees. In prescribing such rules and
regulations or making such order, the Commission shall consider whether
under such laws, a United States institutional trustee is eligible to
act as sole trustee under an indenture relating to securities sold
within the jurisdiction of such foreign government.''
Subsec. (a)(2). Pub. L. 101-550, Sec. 406(5), which directed the
substitution of ``Such institution'' for ``The indenture to be qualified
shall require that such institution'', was executed by making the
substitution for ``The indenture to be qualified shall require that such
institutional'', as the probable intent of Congress.
Subsec. (a)(3). Pub. L. 101-550, Sec. 406(6), struck out ``such
indenture shall provide that'' before ``the rights''.
Subsec. (a)(4). Pub. L. 101-550, Sec. 406(7), (8), struck out ``the
indenture to be qualified shall require that'' before ``the indenture''
and inserted ``shall'' after ``trustee or trustees''.
Subsec. (a)(5). Pub. L. 101-550, Sec. 407, added par. (5).
Subsec. (b). Pub. L. 101-550, Sec. 408, amended subsec. (b)
generally.
Transfer of Functions
For transfer of functions of Securities and Exchange Commission,
with certain exceptions, to Chairman of such Commission, see Reorg. Plan
No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat.
1265, set out under section 78d of this title.
Section Referred to in Other Sections
This section is referred to in sections 77eee, 77mmm, 77rrr, 77sss,
77uuu of this title.
