§ 77kkk. — Preferential collection of claims against obligor.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC77kkk]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2A--SECURITIES AND TRUST INDENTURES
SUBCHAPTER III--TRUST INDENTURES
Sec. 77kkk. Preferential collection of claims against obligor
(a) Trustee as creditor of obligor
Subject to the provisions of subsection (b) of this section, if the
indenture trustee shall be, or shall become, a creditor, directly or
indirectly, secured or unsecured, of an obligor upon the indenture
securities, within three months prior to a default as defined in the
last paragraph of this subsection, or subsequent to such a default,
then, unless and until such default shall be cured, such trustee shall
set apart and hold in a special account for the benefit of the trustee
individually and the indenture security holders--
(1) an amount equal to any and all reductions in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three months' period
and valid as against such obligor and its other creditors, except
any such reduction resulting from the receipt or disposition of any
property described in paragraph (2) of this subsection, or from the
exercise of any right of setoff which the trustee could have
exercised if a petition in bankruptcy had been filed by or against
such obligor upon the date of such default; and
(2) all property received in respect of any claim as such
creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three
months' period, or an amount equal to the proceeds of any such
property, if disposed of, subject, however, to the rights, if any,
of such obligor and its other creditors in such property or such
proceeds.
Nothing herein contained shall affect the right of the indenture
trustee--
(A) to retain for its own account (i) payments made on account
of any such claim by any person (other than such obligor) who is
liable thereon, and (ii) the proceeds of the bona fide sale of any
such claim by the trustee to a third person, and (iii) distributions
made in cash, securities, or other property in respect of claims
filed against such obligor in bankruptcy or receivership or in
proceedings for reorganization pursuant to the Bankruptcy Act or
applicable State law;
(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so held
prior to the beginning of such three months' period;
(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such three months' period and such property was
received as security therefor simultaneously with the creation
thereof, and if the trustee shall sustain the burden of proving that
at the time such property was so received the trustee had no
reasonable cause to believe that a default as defined in the last
paragraph of this subsection would occur within three months; or
(D) to receive payment on any claim referred to in paragraph (B)
or (C) of this subsection, against the release of any property held
as security for such claim as provided in said paragraph (B) or (C),
as the case may be, to the extent of the fair value of such
property.
For the purposes of paragraphs (B), (C), and (D) of this subsection,
property substituted after the beginning of such three months' period
for property held as security at the time of such substitution shall, to
the extent of the fair value of the property released, have the same
status as the property released, and, to the extent that any claim
referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any
preexisting claim of the indenture trustee as such creditor, such claim
shall have the same status as such preexisting claim.
If the trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be
apportioned between the trustee and the indenture security holders in
such manner that the trustee and the indenture security holders realize,
as a result of payments from such special account and payments of
dividends on claims filed against such obligor in bankruptcy or
receivership or in proceedings for reorganization pursuant to the
Bankruptcy Act or applicable State law, the same percentage of their
respective claims, figured before crediting to the claim of the trustee
anything on account of the receipt by it from such obligor of the funds
and property in such special account and before crediting to the
respective claims of the trustee and the indenture security holders
dividends on claims filed against such obligor in bankruptcy or
receivership or in proceedings for reorganization pursuant to the
Bankruptcy Act or applicable State law, but after crediting thereon
receipts on account of the indebtedness represented by their respective
claims from all sources other than from such dividends and from the
funds and property so held in such special account. As used in this
paragraph, with respect to any claim, the term ``dividends'' shall
include any distribution with respect to such claim, in bankruptcy or
receivership or in proceedings for reorganization pursuant to the
Bankruptcy Act or applicable State law, whether such distribution is
made in cash, securities, or other property, but shall not include any
such distribution with respect to the secured portion, if any, of such
claim. The court in which such bankruptcy, receivership, or proceeding
for reorganization is pending shall have jurisdiction (i) to apportion
between the indenture trustee and the indenture security holders, in
accordance with the provisions of this paragraph, the funds and property
held in such special account and the proceeds thereof, or (ii) in lieu
of such apportionment, in whole or in part, to give to the provisions of
this paragraph due consideration in determining the fairness of the
distributions to be made to the indenture trustee and the indenture
security holders with respect to their respective claims, in which event
it shall not be necessary to liquidate or to appraise the value of any
securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such
distributions as between the secured and unsecured portions of such
claims, or otherwise to apply the provisions of this paragraph as a
mathematical formula.
Any indenture trustee who has resigned or been removed after the
beginning of such three months' period shall be subject to the
provisions of this subsection as though such resignation or removal had
not occurred. Any indenture trustee who has resigned or been removed
prior to the beginning of such three months' period shall be subject to
the provisions of this subsection if and only if the following
conditions exist--
(i) the receipt of property or reduction of claim which would
have given rise to the obligation to account, if such indenture
trustee had continued as trustee, occurred after the beginning of
such three months' period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
As used in this subsection, the term ``default'' means any failure
to make payment in full of principal or interest, when and as the same
becomes due and payable, under any indenture which has been qualified
under this subchapter, and under which the indenture trustee is trustee
and the person of whom the indenture trustee is directly or indirectly a
creditor is an obligor; and the term ``indenture security holder'' means
all holders of securities outstanding under any such indenture under
which any such default exists. In any case commenced under the
Bankruptcy Act of July 1, 1898, or any amendment thereto enacted prior
to November 6, 1978, all references to periods of three months shall be
deemed to be references to periods of four months.
(b) Exclusion of creditor relationship arising from specified classes
The indenture to be qualified shall automatically be deemed (unless
it is expressly provided therein that any such provision is excluded) to
contain provisions excluding from the operation of subsection (a) of
this section a creditor relationship arising from--
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one
year or more at the time of acquisition by the indenture trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by the indenture, for the purpose of
preserving the property subject to the lien of the indenture or of
discharging tax liens or other prior liens or encumbrances on the
trust estate, if notice of such advance and of the circumstances
surrounding the making thereof is given to the indenture security
holders, at the time and in the manner provided in the indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other
similar capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in the indenture;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of section 25(a) \1\ of
the Federal Reserve Act, as amended [12 U.S.C. 611 et seq.], which
is directly or indirectly a creditor of an obligor upon the
indenture securities; or
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\1\ See References in Text note below.
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(6) the acquisition, ownership, acceptance, or negotiation of
any drafts, bills of exchange, acceptances, or obligations which
fall within the classification of self-liquidating paper as defined
in the indenture.
(c) Issue or sale of securities by registered holding company
In the exercise by the Commission of any jurisdiction under the
Public Utility Holding Company Act of 1935 [15 U.S.C. 79 et seq.]
regarding the issue or sale, by any registered holding company or a
subsidiary company thereof, of any security of such issuer or seller or
of any other company to a person which is trustee under an indenture or
indentures of such issuer or seller or other company, or of a subsidiary
or associate company or affiliate of such issuer or seller or other
company (whether or not such indenture or indentures are qualified or to
be qualified under this subchapter), the fact that such trustee will
thereby become a creditor, directly or indirectly, of any of the
foregoing shall not constitute a ground for the Commission taking
adverse action with respect to any application or declaration, or
limiting the scope of any rule or regulation which would otherwise
permit such transaction to take effect; but in any case in which such
trustee is trustee under an indenture of the company of which it will
thereby become a creditor, or of any subsidiary company thereof, this
subsection shall not prevent the Commission from requiring (if such
requirement would be authorized under the provisions of the Public
Utility Holding Company Act of 1935) that such trustee, as such, shall
effectively and irrevocably agree in writing, for the benefit of the
holders from time to time of the securities from time to time
outstanding under such indenture, to be bound by the provisions of this
section, subsection (c) of section 77ooo of this title, and, in case of
default (as such term is defined in such indenture), subsection (d) of
section 77ooo of this title, as fully as though such provisions were
included in such indenture. For the purposes of this subsection the
terms ``registered holding company'', ``subsidiary company'',
``associate company'', and ``affiliate'' shall have the respective
meanings assigned to such terms in section 2(a) of the Public Utility
Holding Company Act of 1935 [15 U.S.C. 79b(a)].
(May 27, 1933, ch. 38, title III, Sec. 311, as added Aug. 3, 1939, ch.
411, 53 Stat. 1161; amended Pub. L. 101-550, title IV, Sec. 409, Nov.
15, 1990, 104 Stat. 2728.)
References in Text
Section 25(a) of the Federal Reserve Act, as amended, referred to in
subsec. (b)(5), which is classified to subchapter II (Sec. 611 et seq.)
of chapter 6 of Title 12, Banks and Banking, was renumbered section 25A
of that act by Pub. L. 102-242, title I, Sec. 142(e)(2), Dec. 19, 1991,
105 Stat. 2281.
The Public Utility Holding Company Act of 1935, referred to 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). Pub. L. 101-550, Sec. 409(1)-(4), struck out
``the indenture to be qualified shall provide that'' before ``if'' in
first par., substituted ``If'' for ``The indenture to be qualified shall
provide that, if'' in third par., substituted ``three months'' for
``four months'' and ``three months' '' for ``four months' '' wherever
appearing, and inserted at end ``In any case commenced under the
Bankruptcy Act of July 1, 1898, or any amendment thereto enacted prior
to November 6, 1978, all references to periods of three months shall be
deemed to be references to periods of four months.''
Subsec. (b). Pub. L. 101-550, Sec. 409(5), substituted ``shall
automatically be deemed (unless it is expressly provided therein that
any such provision is excluded) to'' for ``may''.
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 77jjj, 77mmm, 77rrr, 77sss
of this title.
