Page images
PDF
EPUB

priate in the public interest or for the protection of investors that prompt notice be given, that the trustee shall be protected in withholding such notice if and so long as the board of directors or executive committee or a trust committee of directors [or] and/or responsible officers of the trustee in good faith determine the withholding of such notice to be in the interests of the indenture security holders.

Undertaking for Costs (1) The indenture to be qualified may contain provisions to the effect that all parties thereto, including the indenture security holders, agree that the court may in its discretion require, in any suit for the enforcement of any right or remedy under such indenture or against the trustee, as trustee, the filing of an undertaking to pay the costs of such suit, and may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant, having due regard to the merits and good faith of the suit or defense: Provided, however, That the provisions of this subsection shall not apply to suits instituted by the trustee or to suits instituted by security holders for the enforcement of the payment of the principal of or interest on any indenture security, at or after the respective due dates expressed therein, or to suits instituted by any indenture security holder or group of indenture security holders holding in the aggregate more than 10 per centúm in principal amount of the indenture securities outstanding. Release and Substitution; Issuance of Additional Securities; Satisfaction and

Discharge (m) Any provisions in the indenture to be qualified with respect to the release and substitution of any property subject to the lien of the indenture, on the issuance of additional indenture securities, and on the satisfaction and discharge of the indenture shall be subject to restrictions and conditions which in the light of the bargain of the parties, the Commission deems adequate, having due regard to the public interest and the interest of investors.

Other Indenture Provisions (n) The indenture to be qualified shall contain provisions which the Commission shall deem adequate, having due regard to the public interest and the interest of investors, in respect to the following matters

(1) The obligations of the obligors with respect to the recording or filing of the indenture;

(2) The definition of what shall constitute a default thereunder;

(3) The duties of the trustee with respect to (A) giving to the indenture security holders notice of the issuance of additional indenture securities, of the release or substitution of property subject to the lien of the indenture, and of the making of advances to any obligor thereunder, and (B) making reports to the indenture security holders with respect to its qualifications, the properties and funds held by it under the indenture, and its administration of the trust; and (C) calling meetings of the indenture security holders;

(4) The rights and powers of the indenture trustee with respect to (A) entry into possession of the trust estate; (B) the institution of foreclosure proceedings and proceedings for the judicial or other sale of the property subject to the lien of the indenture; (C) obtaining, in its name as such trustee, a judgment for the entire amount due and owing under the indenture; and (D) appearance and intervention in any such proceedings, and filing proofs of claim therein on behalf of the indenture security holders;

(5) Restrictions upon the employment by the indenture trustee of attorneys or other experts who have any interests which are likely materially to conflict with the interests of the indenture security holders.

[Other Indenture Provisions] [(m) The indenture to be qualified shall contain such provisions as the Commission shall deem necessary or appropriate in the public interest or for the protection of investors in respect of the following matters

[(1) Restrictions or conditions on the release and substitution of any property subject to the lien of the indenture, on the issuance of additional securities, and on the satisfaction and discharge of the indenture.

[(2) The obligations of the obligors with respect to the recording or filing of the indenture.

(73) The definition of what shall constitute a default thereunder.

(4) The rights, powers, and duties of the indenture trustee, including (A) the giving to the security holders of notice of the release or substitution of property subject to the lien of the indenture and the issuance of additional securities; (B) the making of reports by the indenture trustee to the security holders with respect to its qualifications, the properties and funds held by it under the indenture and its administration of the trust; (C) the rights, powers or duties of the indenture trustee with respect to the institution of foreclosure proceedings, proceedings for the judicial or other sale of the property subject to the lien of the indenture, or for obtaining, in its name as such trustee, a judgement for the entire amount due and owing under the indenture; with respect to entry into possession of the trust estate; with respect to the calling of meetings of the security holders; with respect to keeping itself informed with regard to all bankruptcy, receivership or reorganization proceedings affecting the obligors, and all proceedings affecting the indenture securities or the property subject to the lien of the indenture; with respect to appearance and intervention in any such proceedings, and the filing of proofs of claim therein on behalf of the security holders; and (D) restrictions upon the employment by the indenture trustee of attorneys or other experts who have or have had, or who represent or have represented, interests which are likely materially to conflict with the interests of the security holders. [(5)) (6) The rights, powers and remedies of the indenture security holders and the manner in which and conditions upon which such rights, powers and remedies may be exercised, including the right and power of the indenture security holders with respect to accountings by the indenture trustee, bringing action to collect the principal of and interest upon the indenture securities at their respective due dates, and calling and holding meetings of the indenture security holders and taking action at such [meetings] meetings, and

Ç(6)] (7) The qualifications, rights, powers and duties of paying agents, including the duty of each paying agent to hold for the benefit of the indenture security holders or the trustee all sums held by such paying agent for the payment of the interest on and principal of the indenture securities, and to give to the indenture trustee notice of defaults in the performance of the obligations of the obligors.

RULES, REGULATIONS, AND ORDERS Sec. 8. (a) The Commission shall have authority from time to time to make, issue, amend, and rescind such rules and regulations and such orders as it may deem necessary or appropriate in the public interest or for the protection of investors [and] to carry out the provisions of this Act, including rules and regulations defining accounting, technical, and trade terms used in this Act. Among other things, the Commission shall have authority, for the purposes of this Act, to prescribe the form or forms in which information required in any statement, application, report or other document filed with the Commission shall be set forth, and to prescribe or recommend forms of [indentures or of] any provisions required or permitted to be included [therein) in an indenture, pursuant to section 7. For the purpose of its rules or regulations the Commission may classify persons, securities, and other matters within its jurisdiction and prescribe different requirements for different classes of persons, securities, or matters.

(b) Subject to the provisions of the Federal Register Act and regulations heretofore or hereafter prescribed under the authority thereof, the rules and regulations of the Commission shall be effective upon publication in the manner which the Commission shall prescribe, or upon such later date as may be provided in such rules and regulations.

(c) The Commission, by such rules and regulations or order as it deems necessary or appropriate in the public interest or for the protection of investors, may authorize the filing of any information or documents required to be filed with the Commission under this Act, or under the Securities Act of 1933, or under the Securities Exchange Act of 1934, or under the Public Utility Holding Company Act of 1935, by incorporating by reference any information or documents on file with the Commission under this Act or any such Act. No provision of this Act imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation or order of the Commission, notwithstanding that such rule, regulation or order may, after such act or omission, be amended or recinded or be determined by judicial or other authority to be invalid for any

reason.

HEARINGS BY COMMISSION

Sec. 9. Hearings may be public and may be held before the Commission, any member or members thereof, or any officer or officers of the Commission designated by it, and appropriate records thereof shall be kept. The Commission may, by such rules and regulations or orders as it deems necessary or appropriate in the public interest or for the protection of investors, provide for the consolidation of proceedings under this Act with proceedings under the Securities Act of 1933, Securities Exchange Act of 1934 and/or under the Public Utility Holding Company Act of 1935.

SPECIAL POWERS OF THE COMMISSION

Sec. 10. (a) For the purpose of any investigation or any other proceeding which, in the opinion of the Commission, is necessary and proper for the enforcement of this Act, any member of the Commission, or any officer thereof designated by it, is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, agreements, or other records which the Commission deems relevant or material to the inquiry. Such attendance of witnesses and the production of any such books, papers, correspondence, memoranda, contracts, agreements or other records may be required from any place in the United States or in any Territory at any designated place of investigation or hearing. In addition, the Commission shall have the powers with respect to investigations and hearings, and with respect to the enforcement of, and offenses and violations under, this Act and rules and regulations and orders prescribed under the authority thereof, provided in sections 20, 22 (b), and 22 (c) of the Securities Act of 1933.

(b) The Treasury Department, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Reserve Banks and the Federal Deposit Insurance Corporation are hereby authorized, under such conditions as they may prescribe, to make available to the Commission, such reports, records, or other information as they may have available with respect to trustees or prospective trustees under indentures for which applications for qualification have been filed with the Commission, and to make through their examiners or other employees, for the use of the Commission, examinations of such trustees or prospective trustees. Every such trustee or prospective trustee shall, as a condition precedent to qualification of such indenture, consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Commission upon request therefor.

Notwithstanding any provision of this Act, no report, record, or other information made available to the Commission under this subsection, no report of an examination made under this subsection for the use of the Commission, no report of an examination made of any trustee or prospective trustee by any Federal, State, Territorial, or District authority having jurisdiction to examine or supervise such trustee, no report made by any such trustee or prospective trustee to any such authority, and no correspondence between any such authority and any such trustee or prospective trustee, shall be divulged or made known or available by the Commission or any member, officer, agent, or employee thereof, to any person other than a member, officer, agent, or employee of ihe Commission: Provided, that the Commission may make available to the Attorney General of the United States any information deemed necessary by the Commission, or requested by him, for the purpose of enabling him to perform his duties under this Act.

(c) Nothing in this Act shall be construed as empowering the Commission to conduct an investigation or other proceeding for the purpose of determining whether the provisions of an indenture as to which an application for qualification is effective are being complied with, or to enforce such provisions.

Any investigation of a prospective trustee, or any proceeding or requirement for the purpose of obtaining information regarding a prospective trustee, under any provision of this Act, shall be limited

(1) to determining, whether such prospective trustee is qualified to act as trustee under the provisions of subsection (6) of section ?; and

(2) to requiring the inclusion in the application of information with respect to the eligibility of such prospective trustee under paragraph (1) of subsection (a) of such section 7; and

(3) to requiring the inclusion in the application of the most recent published report of condition of such prospective trustee, as described in paragraph (2) of such subsection (a), or, if the indenture does not contain the provision with respect to combined capital and surplus authorized by the last sentence of paragraph (2) of subsection (a) of such section 7, to determining whether such prospective trustee is eligible to act as such under such paragraph (2).

COURT REVIEW OF ORDERS; JURISDICTION OF OFFENSES AND SUITS

Sec. 11. (a) Orders of the Commission under this Act shall be subject to review in the same manner, upon the same conditions and to the same extent, as provided in section 9 of the Securities Act of 1933.

(b) Jurisdiction of offenses and violations under, and jurisdiction and venue of suits and actions brought to enforce any liability created by, this Act or any rules or regulations or orders prescribed under the authority thereof shall be as provided in section 22 (a) of the Securities Act of 1933.

LIABILITY FOR MISLEADING STATEMENTS

SEC. 12. (a) Any person who shall make or cause to be made any statement in any application, report or document filed with the Commission pursuant to any provisions of this Act, or any rule, regulation or order thereunder, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or who shall omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall be liable to any person (not knowing that such statement was false or misleading or of such omission) who, in reliance upon such statement or omission, shall have purchased or sold a security issued under the indenture to which such application, report or document relates, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading or of such omission. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit and assess reasonable costs, including reasonable attorneys' fees against either party litigant, having due regard to the merits and good faith of the suit or defense. No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued.

(b) The rights and remedies provided by this Act shall be in addition to any and all other rights and remedies that may exist under the Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935, or otherwise at law or in equity; but no person permitted to remain a suit for damages under the provisions of this Act shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of.

UNLAWFUL REPRESENTATIONS

Sec. 13. It shall be unlawful for any person in issuing or selling any security to represent or imply in any manner whatsoever that any action or failure to act by the Commission in the administration of this Act means that the Commission has in any way passed upon the merits of, or given approval to, any trustee, indenture or security, or any transaction or transactions therein, or that any such action or failure to act with regard to any statement or report filed with or examined by the Commission pursuant to this Act or any rule, regulation, or order thereunder, has the effect of a finding by the Commission that such statement or report is true and accurate on its face or that it is not false or misleading.

PENALTIES

Sec. 14. Any person who wilfully violates any provision of this Act or an rule, regulation, or order thereunder, or any person who wilfully, in any application, report or document filed or required to be filed under the provisions of this Act or any rule, regulation, or order thereunder, makes any untrue statement of a material factor omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined not more than $5,000 or imprisoned not more than five years, or both.

EFFECT ON EXISTING LAW

Sec. 15. Nothing in this Act shall affect (1) the jurisdiction of the Commission under the Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935, over any person, security, or contract, or (2) the rights, obligations, duties or liabilities of any person under such Acts; nor shall anything in this Act affect the jurisdiction of any other commission, board, agency, or officer of the United States or of any State or political subdivision of any State, over any person or security, in so far as such jurisdiction does not conflict with any provision of this Act or any rule, regulation, or order thereunder.

CONTRARY STIPULATIONS VOID

SEC. 16. Any condition, stipulation, or provision binding any person to waive compliance with any provision of this Act or with any rule, regulation, or order thereunder shall be void.

SEPARABILITY OF PROVISIONS

Sec. 17. If any provision of this Act or the application of such provision to any person or circumstance shall be held invalid, the remainder of the Act and the

lication of such provision to persons or circumstances other than those as to which it is held invalid shall not be affected thereby.

S. 2344, TRUST INDENTURE ACT OF 1937, ANALYSIS OF COMMITTEE PRINT No. 3

The following is an analysis of committee print no. 3 of the Trust Indenture Act of 1937 (S. 2344) introduced by Senator Barkley on May 6, 1937, and referred to the Committee on Banking and Currency. Committee print no. 3 indicates, by line type and italics, suggested changes in committee print no. 2 of June 10, 1937, which is the print on which the public hearings were held. Minor changes, including typographical corrections, will not be discussed in this analysis.

TITLE

The change which has been made in the long title is designed merely to call attention to the fact that the bill is based not only on the commerce power but also on the mail power.

SECTION 1. NECESSITY FOR REGULATION The words stricken through in subsection (b) of this section have been omitted as being unnecessary.

SECTION 2. DEFINITIONS The change made in the last clause of the definition of the term "obligor" (11) is intended to make clear that the trustee under an issue of certificates of interest or participation is not itself to be regarded as an obligor, merely by reason of the fact that it agrees to pay over to the certificate holders moneys received from the obligor on the underyling security or securities. Otherwise the trustee would be disqualified from acting as such by section 7 (b) (2).

The clause added to the definition of the term "paying agent” (12) makes clear that a person who makes principal or interest payments on certificates of interest or participation, on behalf of the trustee thereunder, is also a “paying agent.

The definition of the term "voting security' (15) has been changed to conform to that contained in section 2 (a) (17) of the Public Utility Holding Company Act of 1935. The test now is the right to vote in the direction or management of the affairs of the “person” in question, rather than the right to vote for the election of directors. The new definition makes clear that the expression “percentage of the voting securities” has reference to the voting power, and not to the number of shares.

SECTION 3. EXEMPTED SECURITIES AND TRANSACTIONS The changes made in paragraph (1) of subsection (a) are for purposes of clarification only.

The words stricken through in paragraph (2) are unnecessary, in view of the provisions of paragraph (7) thereof.

Under the change made in paragraph (3), the qualification requirements of the Act are to become effective 6 months after its enactment. This change was thought desirable in view of the impossibility of estimating in advance the date of enactment.

« PreviousContinue »