11 U.S.C. § 1145 — Exemption from securities laws

Page 276 TITLE 11—BANKRUPTCY § 1143 § 1143. Distribution If a plan requires presentment or surrender of a security or the performance of any other act as a condition to participation in distribution under the plan, such action shall be taken not later than five years after the date of the entry of the order of confirmation. Any entity that has not within such time presented or surren- dered such entity’s security or taken any such other action that the plan requires may not par- ticipate in distribution under the plan. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2639.) HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 Section 1143 fixes a 5-year limitation on presentment or surrender of securities or the performance of any other act that is a condition to participation in dis- tribution under the plan. The 5 years runs from the date of the entry of the order of confirmation. Any en- tity that does not take the appropriate action with the 5-year period is barred from participation in the dis- tribution under the plan. § 1144. Revocation of an order of confirmation On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation, and after notice and a hearing, the court may revoke such order if and only if such order was procured by fraud. An order under this section revoking an order of confirmation shall— (1) contain such provisions as are necessary to protect any entity acquiring rights in good faith reliance on the order of confirmation; and (2) revoke the discharge of the debtor. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2639; Pub. L. 98–353, title III, § 515, July 10, 1984, 98 Stat. 387.) HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 If an order of confirmation was procured by fraud, then the court may revoke the order on request of a party in interest if the request is made before 180 days after the date of the entry of the order of confirmation. The order revoking the order of confirmation must re- voke the discharge of the debtor, and contain such pro- visions as are necessary to protect any entity acquiring rights in good faith reliance on the order of confirma- tion. Editorial Notes AMENDMENTS 1984—Pub. L. 98–353 inserted ‘‘if and only’’ after ‘‘re- voke such order’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 1145. Exemption from securities laws (a) Except with respect to an entity that is an underwriter as defined in subsection (b) of this section, section 5 of the Securities Act of 1933 and any State or local law requiring registra- tion for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security do not apply to— (1) the offer or sale under a plan of a security of the debtor, of an affiliate participating in a joint plan with the debtor, or of a successor to the debtor under the plan— (A) in exchange for a claim against, an in- terest in, or a claim for an administrative expense in the case concerning, the debtor or such affiliate; or (B) principally in such exchange and part- ly for cash or property; (2) the offer of a security through any war- rant, option, right to subscribe, or conversion privilege that was sold in the manner specified in paragraph (1) of this subsection, or the sale of a security upon the exercise of such a war- rant, option, right, or privilege; (3) the offer or sale, other than under a plan, of a security of an issuer other than the debtor or an affiliate, if— (A) such security was owned by the debtor on the date of the filing of the petition; (B) the issuer of such security is— (i) required to file reports under section 13 or 15(d) of the Securities Exchange Act of 1934; and (ii) in compliance with the disclosure and reporting provision of such applicable section; and (C) such offer or sale is of securities that do not exceed— (i) during the two-year period imme- diately following the date of the filing of the petition, four percent of the securities of such class outstanding on such date; and (ii) during any 180-day period following such two-year period, one percent of the securities outstanding at the beginning of such 180-day period; or (4) a transaction by a stockbroker in a secu- rity that is executed after a transaction of a kind specified in paragraph (1) or (2) of this subsection in such security and before the ex- piration of 40 days after the first date on which such security was bona fide offered to the public by the issuer or by or through an underwriter, if such stockbroker provides, at the time of or before such transaction by such stockbroker, a disclosure statement approved under section 1125 of this title, and, if the court orders, information supplementing such disclosure statement. (b)(1) Except as provided in paragraph (2) of this subsection and except with respect to ordi- nary trading transactions of an entity that is not an issuer, an entity is an underwriter under section 2(a)(11) of the Securities Act of 1933, if such entity— (A) purchases a claim against, interest in, or claim for an administrative expense in the case concerning, the debtor, if such purchase is with a view to distribution of any security received or to be received in exchange for such a claim or interest; (B) offers to sell securities offered or sold under the plan for the holders of such securi- ties; Page 277 TITLE 11—BANKRUPTCY § 1145 (C) offers to buy securities offered or sold under the plan from the holders of such securi- ties, if such offer to buy is— (i) with a view to distribution of such secu- rities; and (ii) under an agreement made in connec- tion with the plan, with the consummation of the plan, or with the offer or sale of secu- rities under the plan; or (D) is an issuer, as used in such section 2(a)(11), with respect to such securities. (2) An entity is not an underwriter under sec- tion 2(a)(11) of the Securities Act of 1933 or under paragraph (1) of this subsection with re- spect to an agreement that provides only for— (A)(i) the matching or combining of frac- tional interests in securities offered or sold under the plan into whole interests; or (ii) the purchase or sale of such fractional interests from or to entities receiving such fractional interests under the plan; or (B) the purchase or sale for such entities of such fractional or whole interests as are nec- essary to adjust for any remaining fractional interests after such matching. (3) An entity other than an entity of the kind specified in paragraph (1) of this subsection is not an underwriter under section 2(a)(11) of the Securities Act of 1933 with respect to any securi- ties offered or sold to such entity in the manner specified in subsection (a)(1) of this section. (c) An offer or sale of securities of the kind and in the manner specified under subsection (a)(1) of this section is deemed to be a public of- fering. (d) The Trust Indenture Act of 1939 does not apply to a note issued under the plan that ma- tures not later than one year after the effective date of the plan. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2639; Pub. L. 98–353, title III, § 516, July 10, 1984, 98 Stat. 387; Pub. L. 103–394, title V, § 501(d)(33), Oct. 22, 1994, 108 Stat. 4146; Pub. L. 111–327, § 2(a)(37), Dec. 22, 2010, 124 Stat. 3561.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1145 of the House amendment deletes a provi- sion contained in section 1145(a)(1) of the House bill in favor of a more adequate provision contained in section 364(f) of the House amendment. In addition, section 1145(d) has been added to indicate that the Trust Inden- ture Act [15 U.S.C. 77aaa et seq.] does not apply to a commercial note issued under a plan, if the note ma- tures not later than 1 year after the effective date of the plan. Some commercial notes receive such an ex- emption under 304(a)(4) of the Trust Indenture Act of 1939 (15 U.S.C. § 77ddd(a)(4)) and others may receive pro- tection by incorporation by reference into the Trust In- denture Act of securities exempt under section 3a(3), (7), (9), or (10) of the Securities Act of 1933 [15 U.S.C. 77c(a)(3), (7), (9), (10)]. In light of the amendments made to the Securities Act of 1933 [15 U.S.C. 77a et seq.] in title III of the House amendment to H.R. 8200, a specific exemption from the Trust Indenture Act [15 U.S.C. 77aaa et seq.] is required in order to create certainty regarding plans of reorganization. Section 1145(d) is not intended to imply that commercial notes issued under a plan that matures more than 1 year after the effective date of the plan are automatically covered by the Trust Indenture Act of 1939 since such notes may fall within another ex- emption thereto. One other point with respect to Section 1145 deserves comment. Section 1145(a)(3) grants a debtor in posses- sion or trustee in chapter 11 an extremely narrow port- folio security exemption from section 5 of the Securi- ties Act of 1933 [15 U.S.C. 77e] or any comparable State law. The provision was considered by Congress and adopted after much study. The exemption is reasonable and is more restrictive than comparable provisions under the Securities Act [15 U.S.C. 77a et seq.] relating to the estates of decedents. Subsequent to passage of H.R. 8200 by the House of Representatives, the Securi- ties and Exchange Commission promulgated Rule 148 to treat with this problem under existing law. Members of Congress received opinions from attorneys indicating dissatisfaction with the Commission’s rule although the rule has been amended, the ultimate limitation of 1 percent promulgated by the Commission is wholly un- acceptable. The Commission rule would permit a trustee or debt- or in possession to distribute securities at the rate of 1 percent every 6 months. Section 1145(a)(3) permits the trustee to distribute 4 percent of the securities during the 2-year period immediately following the date of the filing of the petition. In addition, the security must be of a reporting company under section 13 of the Securi- ties and Exchange Act of 1934 [15 U.S.C. 78m], and must be in compliance with all applicable requirements for the continuing of trading in the security on the date that the trustee offers or sells the security. With these safeguards the trustee or debtor in posses- sion should be able to distribute 4 percent of the securi- ties of a class at any time during the 2-year period im- mediately following the date of the filing of the peti- tion in the interests of expediting bankruptcy adminis- tration. The same rationale that applies in expedi- tiously terminating decedents’ estates applies no less to an estate under title 11. SENATE REPORT NO. 95–989 This section, derived from similar provisions found in sections 264, 393, and 518 of the Bankruptcy Act [sec- tions 664, 793, and 918 of former title 11], provides a lim- ited exemption from the securities laws for securities issued under a plan of reorganization and for certain other securities. Subsection (a) exempts from the re- quirements of section 5 of the Securities Act of 1933 [15 U.S.C. 77e] and from any State or local law requiring registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security, the offer or sale of certain securities. Paragraph (1) of subsection (a) exempts the offer or sale under section 364 of any security that is not an eq- uity security or convertible into an equity security. This paragraph is designed to facilitate the issuance of certificates of indebtedness, and should be read in light of the amendment made in section 306 of title III to sec- tion 3(a)(7) of the 1933 act [15 U.S.C. 77c(a)(7)]. Paragraph (2) of subsection (a) exempts the offer or sale of any security of the debtor, a successor to the debtor, or an affiliate in a joint plan, distributed under a plan if such security is exchanged in principal part for securities of the debtor or for allowed claims or ad- ministrative expenses. This exemption is carried over from present law, except as to administrative claims, but is limited to prevent distribution of securities to other than claim holders or equity security holders of the debtor or the estate. Paragraph (3) of subsection (a) exempts the offer or sale of any security that arises from the exercise of a subscription right or from the exercise of a conversion privilege when such subscription right or conversion privilege was issued under a plan. This exemption is necessary in order to enhance the marketability of sub- scription rights or conversion privileges, including war- rants, offered or sold under a plan. This is present law. Paragraph (4) of subsection (a) exempts sales of port- folio securities, excluding securities of the debtor or its affiliate, owned by the debtor on the date of the filing Page 278 TITLE 11—BANKRUPTCY § 1145 of the petition. The purpose of this exemption is to allow the debtor or trustee to sell or distribute, with- out allowing manipulation schemes, restricted port- folio securities held or acquired by the debtor. Sub- paragraph (B) of section 1145(a)(4) limits the exemption to securities of a company that is required to file re- ports under section 13 of the Securities Act [15 U.S.C. 78m] and that is in compliance with all requirements for the continuance of trading those securities. This limitation effectively prevents selling into the market ‘‘cats and dogs’’ of a nonreporting company. Subpara- graph (C) places a limitation on the amount of re- stricted securities that may be distributed. During the case, the trustee may sell up to 4 percent of each class of restricted securities at any time during the first 2 years and 1 percent during any 180-day period there- after. This relaxation of the resale rules for debtors in holding restricted securities is similar to but less ex- tensive than the relaxation in SEC Rule 114(c)(3)(v) for the estates of deceased holders of securities. Paragraph (5) contains an exemption for brokers and dealers (stockbrokers, as defined in title 11) akin to the exemption provided by section 4(3)(A) of the Securities Act of 1933 [15 U.S.C. 77d(3)(A)]. Instead of being re- quired to supply a prospectus, however, the stock- broker is required to supply the approved disclosure statement, and if the court orders, information supplementing the disclosure statement. Under present law, the stockholder is not required to supply any- thing. Subsection (b) is new. The subsection should be read in light of the amendment in section 306 of title III to the 1933 act [15 U.S.C. 77c(a)(7), (9), (10)]. It specifies the standards under which a creditor, equity security hold- er, or other entity acquiring securities under the plan may resell them. The Securities Act places limitations on sales by underwriters. This subsection defines who is an underwriter, and thus restricted, and who is free to resell. Paragraph (1) enumerates real underwriters that participate in a classical underwriting. A person is an underwriter if he purchases a claim against, interest in, or claim for an administrative expense in the case con- cerning, the debtor, with a view to distribution or in- terest. This provision covers the purchase of a certifi- cate of indebtedness issued under proposed 11 U.S.C. 364 and purchased from the debtor, if the purchase of the certificate was with a view to distribution. A person is also an underwriter if he offers to sell se- curities offered or sold under the plan for the holders of such securities, or offers to buy securities offered or sold under the plan from the holders of such securities, if the offer to buy is with a view to distribution of the securities and under an agreement made in connection with the plan, with the consummation of the plan or with the offer or sale of securities under the plan. Fi- nally, a person is an underwriter if he is an issuer, as used in section 2(11) of the Securities Act of 1933 [15 U.S.C. 77b(11)]. Paragraph (2) of subsection (b) exempts from the defi- nition of underwriter any entity to the extent that any agreement that would bring the entity under the defi- nition in paragraph (1) provides only for the matching combination of fractional interests in the covered secu- rities or the purchase or sale of fractional interests. This paragraph and paragraph (1) are modeled after former rule 133 of the Securities and Exchange Com- mission. Paragraph (3) specifies that if an entity is not an un- derwriter under the provisions of paragraph (1), as lim- ited by paragraph (2), then the entity is not an under- writer for the purposes of the Securities Act of 1933 [15 U.S.C. 77a et seq.] with respect to the covered securi- ties, that is, those offered or sold in an exempt trans- action specified in subsection (a)(2). This makes clear that the current definition of underwriter in section 2(11) of the Securities Act of 1933 [15 U.S.C. 77b(11)] does not apply to such a creditor. The definition in that sec- tion technically applies to any person that purchases securities with ‘‘a view to distribution.’’ If literally ap- plied, it would prevent any creditor in a bankruptcy case from selling securities received without filing a registration statement or finding another exemption. Subsection (b) is a first run transaction exemption and does not exempt a creditor that, for example, some years later becomes an underwriter by reacquiring se- curities originally issued under a plan. Subsection (c) makes an offer or sale of securities under the plan in an exempt transaction (as specified in subsection (a)(2)) a public offering, in order to prevent characterization of the distribution as a ‘‘private place- ment’’ which would result in restrictions, under rule 144 of the SEC, on the resale of the securities. Editorial Notes REFERENCES IN TEXT Section 5 of the Securities Act of 1933, referred to in subsec. (a), is classified to section 77e of Title 15, Com- merce and Trade. Sections 13 and 15(d) of the Securities Exchange Act of 1934, referred to in subsec. (a)(3)(B)(i), are classified to sections 78m and 78o(d), respectively, of Title 15, Commerce and Trade. The Trust Indenture Act of 1939, referred to in subsec. (d), is title III of act May 27, 1933, ch. 38, as added Aug. 3, 1939, ch. 411, 53 Stat. 1149, which is classified gen- erally to subchapter III (§ 77aaa et seq.) of chapter 2A of Title 15, Commerce and Trade. For complete classifica- tion of this Act to the Code, see section 77aaa of Title 15 and Tables. AMENDMENTS 2010—Subsec. (b). Pub. L. 111–327 substituted ‘‘2(a)(11)’’ for ‘‘2(11)’’ wherever appearing. 1994—Subsec. (a). Pub. L. 103–394, § 501(d)(33)(A), in in- troductory provisions struck out ‘‘(15 U.S.C. 77e)’’ after ‘‘Act of 1933’’ and substituted ‘‘do not apply’’ for ‘‘does not apply’’ and in par. (3)(B)(i) struck out ‘‘(15 U.S.C. 78m or 78o(d))’’ after ‘‘Act of 1934’’. Subsec. (b)(1). Pub. L. 103–394, § 501(d)(33)(B), struck out ‘‘(15 U.S.C. 77b(11))’’ after ‘‘Act of 1933’’. Subsec. (d). Pub. L. 103–394, § 501(d)(33)(C), struck out ‘‘(15 U.S.C. 77aaa et seq.)’’ after ‘‘Act of 1939’’. 1984—Subsec. (a)(3)(B)(i). Pub. L. 98–353, § 516(a)(1), in- serted ‘‘or 15(d)’’ after ‘‘13’’, and ‘‘or 78o(d)’’ after ‘‘78m’’. Subsec. (a)(3)(B)(ii). Pub. L. 98–353, § 516(a)(2), amend- ed cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: ‘‘in compliance with all applicable require- ments for the continuance of trading in such security on the date of such offer or sale; and’’. Subsec. (a)(4). Pub. L. 98–353, § 516(a)(3), substituted ‘‘stockbroker’’ for ‘‘stockholder’’ in two places. Subsec. (b)(1). Pub. L. 98–353, § 516(b)(1), inserted ‘‘and except with respect to ordinary trading transactions of an entity that is not an issuer’’. Subsec. (b)(1)(C). Pub. L. 98–353, § 516(b)(2), substituted ‘‘from’’ for ‘‘for’’. Subsec. (b)(2)(A)(i). Pub. L. 98–353, § 516(b)(3), sub- stituted ‘‘or combining’’ for ‘‘combination’’. Subsec. (b)(2)(A)(ii). Pub. L. 98–353, § 516(b)(4), sub- stituted ‘‘from or to’’ for ‘‘among’’. Subsec. (d). Pub. L. 98–353, § 516(c), struck out ‘‘com- mercial’’ before ‘‘note’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. Page 279 TITLE 11—BANKRUPTCY § 1146 § 1146. Special tax provisions (a) The issuance, transfer, or exchange of a se- curity, or the making or delivery of an instru- ment of transfer under a plan confirmed under section 1129 or 1191 of this title, may not be taxed under any law imposing a stamp tax or similar tax. (b) The court may authorize the proponent of a plan to request a determination, limited to questions of law, by a State or local govern- mental unit charged with responsibility for col- lection or determination of a tax on or measured by income, of the tax effects, under section 346 of this title and under the law imposing such tax, of the plan. In the event of an actual con- troversy, the court may declare such effects after the earlier of— (1) the date on which such governmental unit responds to the request under this sub- section; or (2) 270 days after such request. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2641; Pub. L. 98–353, title III, § 517, July 10, 1984, 98 Stat. 388; Pub. L. 109–8, title VII, § 719(b)(3), Apr. 20, 2005, 119 Stat. 133; Pub. L. 116–54, § 4(a)(12), Aug. 23, 2019, 133 Stat. 1086.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1146 of the House amendment represents a compromise between the House bill and Senate amend- ment. Special tax provisions: reorganization: The House bill provided rules on the effect of bankruptcy on the tax- able year of the debtor and on tax return filing require- ments for State and local taxes only. The House bill also exempted from State or local stamp taxes the issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan. The House bill also authorized the bankruptcy court to declare the tax effects of a reorganization plan after the proponent of the plan had requested a ruling from State or local tax authority and either had re- ceived an unfavorable ruling or the tax authority had not issued a ruling within 270 days. The Senate amendment deleted the rules concerning the taxable years of the debtor and tax return filing re- quirements since the Federal rules were to be consid- ered in the next Congress. It broadened the rule ex- empting transfers of securities to include Federal stamp or similar taxes, if any. In addition, the Senate amendment deleted the provision which permitted the bankruptcy court to determine the tax effects of a plan. The House amendment retains the State and local rules in the House bill with one modification. Under the House amendment, the power of the bankruptcy court to declare the tax effects of the plan is limited to issues of law and not to questions of fact such as the al- lowance of specific deductions. Thus, the bankruptcy court could declare whether the reorganization quali- fied for taxfree status under State or local tax rules, but it could not declare the dollar amount of any tax attributes that survive the reorganization. SENATE REPORT NO. 95–989 Section 1146 provides special tax rules applicable to Title 11 reorganizations. Subsection (a) provides that the taxable period of an individual debtor terminates on the date of the order for relief, unless the case has been converted into a reorganization from a liquidation proceeding. Subsection (b) requires the trustee of the estate of an individual debtor in a reorganization to file a tax re- turn for each taxable period while the case is pending after the order for relief. For corporations in chapter 11, the trustee is required to file the tax returns due while the case is pending (sec. 346(c)(2)). Subsection (c) exempts from Federal, State, or local stamp taxes the issuance, transfer, or exchange of a se- curity, or the making or delivery of an instrument of transfer under a plan. This subsection is derived from section 267 of the present Bankruptcy Act [section 667 of former title 11]. Subsection (d) permits the court to authorize the pro- ponent of a reorganization plan to request from the In- ternal Revenue Service (or State or local tax author- ity) an advance ruling on the tax effects of the pro- posed plan. If a ruling is not obtained within 270 days after the request was made, or if a ruling is obtained but the proponent of the plan disagrees with the ruling, the bankruptcy court may resolve the dispute and de- termine the tax effects of the proposed plan. Subsection (e) provides that prepetition taxes which are nondischargeable in a reorganization, and all taxes arising during the administration period of the case, may be assessed and collected from the debtor or the debtor’s successor in a reorganization (see sec. 505(c) of the bill). HOUSE REPORT NO. 95–595 Section 1146 of title 11 specifies five subsections which embody special tax provisions that apply in a case under chapter 11 of title 11. Subsection (a) indi- cates that the tax year of an individual debtor termi- nates on the date of the order for relief under chapter 11. Termination of the taxable year of the debtor com- mences the tax period of the estate. If the case was con- verted from chapter 7 of title 11 then the estate is cre- ated as a separate taxable entity dating from the order for relief under chapter 7. If multiple conversion of the case occurs, then the estate is treated as a separate taxable entity on the date of the order for relief under the first chapter under which the estate is a separate taxable entity. Subsection (d) permits the court to authorize the pro- ponent of a plan to request a taxing authority to de- clare the tax effects of such plan. In the event of an ac- tual controversy, the court may declare the tax effects of the plan of reorganization at any time after the ear- lier of action by such taxing authority or 270 days after the request. Such a declaration, unless appealed, be- comes a final judgment and binds any tax authority that was requested by the proponent to determine the tax effects of the plan. Editorial Notes AMENDMENTS 2019—Subsec. (a). Pub. L. 116–54 inserted ‘‘or 1191’’ after ‘‘1129’’. 2005—Pub. L. 109–8 redesignated subsecs. (c) and (d) as (a) and (b), respectively, and struck out former subsecs. (a) and (b) which read as follows: ‘‘(a) For the purposes of any State or local law impos- ing a tax on or measured by income, the taxable period of a debtor that is an individual shall terminate on the date of the order for relief under this chapter, unless the case was converted under section 706 of this title. ‘‘(b) The trustee shall make a State or local tax re- turn of income for the estate of an individual debtor in a case under this chapter for each taxable period after the order for relief under this chapter during which the case is pending.’’ 1984—Subsec. (c). Pub. L. 98–353, § 517(a), struck out ‘‘State or local’’ before ‘‘law imposing a stamp tax’’. Subsec. (d)(1). Pub. L. 98–353, § 517(b), substituted ‘‘or’’ for ‘‘and’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2019 AMENDMENT Amendment by Pub. L. 116–54 effective 180 days after Aug. 23, 2019, see section 5 of Pub. L. 116–54, set out as a note under section 101 of this title.