
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 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

    The Bankruptcy Act, referred to in subsec. (a), is act July 1, 1898, 
ch. 541, 30 Stat. 544, as amended, which was classified generally to 
former Title 11, Bankruptcy. The Act was repealed effective Oct. 1, 
1979, by Pub. L. 95-598, Secs. 401(a), 402(a), Nov. 6, 1978, 92 Stat. 
2682, section 101 of which enacted revised Title 11.
    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.
