CITE

    15 USC Sec. 77kkk                                           01/08/2008

EXPCITE

    TITLE 15 - COMMERCE AND TRADE
    CHAPTER 2A - SECURITIES AND TRUST INDENTURES
    SUBCHAPTER III - TRUST INDENTURES

HEAD

    Sec. 77kkk. Preferential collection of claims against obligor

STATUTE

    (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
        (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 (!1) 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) (!1) 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.(!1)

SOURCE

    (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 in
    subsec. (c), is title I of act Aug. 26, 1935, ch. 687, 49 Stat.
    803, as amended, which was classified generally to chapter 2C (Sec.
    79 et seq.) of this title, prior to repeal by Pub. L. 109-58, title
    XII, Sec. 1263, Aug. 8, 2005, 119 Stat. 974. For complete
    classification of this Act to the Code, see 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.

FOOTNOTE

    (!1) See References in Text note below.