12 U.S.C. § 5385 — Orderly liquidation of covered brokers

Page 1878 TITLE 12—BANKS AND BANKING § 5385 a bridge financial company organized by the Corporation as receiver, without consent of any customer, customer accounts of the cov- ered financial company. (d) Funding for orderly liquidation Upon its appointment as receiver for a covered financial company, and thereafter as the Cor- poration may, in its discretion, determine to be necessary or appropriate, the Corporation may make available to the receivership, subject to the conditions set forth in section 5386 of this title and subject to the plan described in section 5390(n)(9) of this title, funds for the orderly liq- uidation of the covered financial company. All funds provided by the Corporation under this subsection shall have a priority of claims under subparagraph (A) or (B) of section 5390(b)(1) of this title, as applicable, including funds used for— (1) making loans to, or purchasing any debt obligation of, the covered financial company or any covered subsidiary; (2) purchasing or guaranteeing against loss the assets of the covered financial company or any covered subsidiary, directly or through an entity established by the Corporation for such purpose; (3) assuming or guaranteeing the obligations of the covered financial company or any cov- ered subsidiary to 1 or more third parties; (4) taking a lien on any or all assets of the covered financial company or any covered sub- sidiary, including a first priority lien on all unencumbered assets of the covered financial company or any covered subsidiary to secure repayment of any transactions conducted under this subsection, except that, if the cov- ered financial company or covered subsidiary is an insurance company or a subsidiary of an insurance company, the Corporation— (A) shall promptly notify the State insur- ance authority for the insurance company of the intention to take such lien; and (B) may only take such lien— (i) to secure repayment of funds made available to such covered financial com- pany or covered subsidiary; and (ii) if the Corporation determines, after consultation with the State insurance au- thority, that such lien will not unduly im- pede or delay the liquidation or rehabilita- tion of the insurance company, or the re- covery by its policyholders; (5) selling or transferring all, or any part, of such acquired assets, liabilities, or obligations of the covered financial company or any cov- ered subsidiary; and (6) making payments pursuant to sub- sections (b)(4), (d)(4), and (h)(5)(E) of section 5390 of this title. (Pub. L. 111–203, title II, § 204, July 21, 2010, 124 Stat. 1454; Pub. L. 114–113, div. O, title VII, § 706(b)(2), Dec. 18, 2015, 129 Stat. 3029.) Editorial Notes REFERENCES IN TEXT This subchapter, referred to in subsecs. (a) and (b), was in the original ‘‘this title’’, meaning title II of Pub. L. 111–203, July 21, 2010, 124 Stat. 1442, which is classi- fied principally to this subchapter. For complete classi- fication of title II to the Code, see Tables. AMENDMENTS 2015—Subsec. (d)(4). Pub. L. 114–113 inserted ‘‘, except that, if the covered financial company or covered sub- sidiary is an insurance company or a subsidiary of an insurance company, the Corporation—’’ and subpars. (A) and (B) before semicolon at end. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of this title. § 5385. Orderly liquidation of covered brokers and dealers (a) Appointment of SIPC as trustee (1) Appointment Upon the appointment of the Corporation as receiver for any covered broker or dealer, the Corporation shall appoint, without any need for court approval, the Securities Investor Protection Corporation to act as trustee for the liquidation under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) of the covered broker or dealer. (2) Actions by SIPC (A) Filing Upon appointment of SIPC under para- graph (1), SIPC shall promptly file with any Federal district court of competent jurisdic- tion specified in section 78u or 78aa of title 15, an application for a protective decree under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) as to the cov- ered broker or dealer. The Federal district court shall accept and approve the filing, in- cluding outside of normal business hours, and shall immediately issue the protective decree as to the covered broker or dealer. (B) Administration by SIPC Following entry of the protective decree, and except as otherwise provided in this sec- tion, the determination of claims and the liquidation of assets retained in the receiv- ership of the covered broker or dealer and not transferred to the bridge financial com- pany shall be administered under the Securi- ties Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) by SIPC, as trustee for the covered broker or dealer. (C) Definition of filing date For purposes of the liquidation proceeding, the term ‘‘filing date’’ means the date on which the Corporation is appointed as re- ceiver of the covered broker or dealer. (D) Determination of claims As trustee for the covered broker or deal- er, SIPC shall determine and satisfy, con- sistent with this subchapter and with the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), all claims against the covered broker or dealer arising on or before the filing date. Page 1879 TITLE 12—BANKS AND BANKING § 5385 (b) Powers and duties of SIPC (1) In general Except as provided in this section, upon its appointment as trustee for the liquidation of a covered broker or dealer, SIPC shall have all of the powers and duties provided by the Secu- rities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), including, without limitation, all rights of action against third parties, and shall conduct such liquidation in accordance with the terms of the Securities Investor Pro- tection Act of 1970 (15 U.S.C. 78aaa et seq.), ex- cept that SIPC shall have no powers or duties with respect to assets and liabilities trans- ferred by the Corporation from the covered broker or dealer to any bridge financial com- pany established in accordance with this sub- chapter. (2) Limitation of powers The exercise by SIPC of powers and func- tions as trustee under subsection (a) shall not impair or impede the exercise of the powers and duties of the Corporation with regard to— (A) any action, except as otherwise pro- vided in this subchapter— (i) to make funds available under section 5384(d) of this title; (ii) to organize, establish, operate, or terminate any bridge financial company; (iii) to transfer assets and liabilities; (iv) to enforce or repudiate contracts; or (v) to take any other action relating to such bridge financial company under sec- tion 5390 of this title; or (B) determining claims under subsection (e). (3) Protective decree SIPC and the Corporation, in consultation with the Commission, shall jointly determine the terms of the protective decree to be filed by SIPC with any court of competent jurisdic- tion under section 78u or 78aa of title 15, as re- quired by subsection (a). (4) Qualified financial contracts Notwithstanding any provision of the Secu- rities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) to the contrary (including sec- tion 5(b)(2)(C) of that Act (15 U.S.C. 78eee(b)(2)(C))), the rights and obligations of any party to a qualified financial contract (as that term is defined in section 5390(c)(8) of this title) to which a covered broker or dealer for which the Corporation has been appointed re- ceiver is a party shall be governed exclusively by section 5390 of this title, including the limi- tations and restrictions contained in section 5390(c)(10)(B) of this title. (c) Limitation on court action Except as otherwise provided in this sub- chapter, no court may take any action, includ- ing any action pursuant to the Securities Inves- tor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) or the Bankruptcy Code, to restrain or af- fect the exercise of powers or functions of the Corporation as receiver for a covered broker or dealer and any claims against the Corporation as such receiver shall be determined in accord- ance with subsection (e) and such claims shall be limited to money damages. (d) Actions by Corporation as receiver (1) In general Notwithstanding any other provision of this subchapter, no action taken by the Corpora- tion as receiver with respect to a covered broker or dealer shall— (A) adversely affect the rights of a cus- tomer to customer property or customer name securities; (B) diminish the amount or timely pay- ment of net equity claims of customers; or (C) otherwise impair the recoveries pro- vided to a customer under the Securities In- vestor Protection Act of 1970 (15 U.S.C. 78aaa et seq.). (2) Net proceeds The net proceeds from any transfer, sale, or disposition of assets of the covered broker or dealer, or proceeds thereof by the Corporation as receiver for the covered broker or dealer shall be for the benefit of the estate of the covered broker or dealer, as provided in this subchapter. (e) Claims against the Corporation as receiver Any claim against the Corporation as receiver for a covered broker or dealer for assets trans- ferred to a bridge financial company established with respect to such covered broker or dealer— (1) shall be determined in accordance with section 5390(a)(2) of this title; and (2) may be reviewed by the appropriate dis- trict or territorial court of the United States in accordance with section 5390(a)(5) of this title. (f) Satisfaction of customer claims (1) Obligations to customers Notwithstanding any other provision of this subchapter, all obligations of a covered broker or dealer or of any bridge financial company established with respect to such covered broker or dealer to a customer relating to, or net equity claims based upon, customer prop- erty or customer name securities shall be promptly discharged by SIPC, the Corpora- tion, or the bridge financial company, as ap- plicable, by the delivery of securities or the making of payments to or for the account of such customer, in a manner and in an amount at least as beneficial to the customer as would have been the case had the actual proceeds re- alized from the liquidation of the covered broker or dealer under this subchapter been distributed in a proceeding under the Securi- ties Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) without the appointment of the Corporation as receiver and without any transfer of assets or liabilities to a bridge fi- nancial company, and with a filing date as of the date on which the Corporation is ap- pointed as receiver. (2) Satisfaction of claims by SIPC SIPC, as trustee for a covered broker or dealer, shall satisfy customer claims in the manner and amount provided under the Secu- rities Investor Protection Act of 1970 (15 U.S.C. Page 1880 TITLE 12—BANKS AND BANKING § 5386 78aaa et seq.), as if the appointment of the Corporation as receiver had not occurred, and with a filing date as of the date on which the Corporation is appointed as receiver. The Cor- poration shall satisfy customer claims, to the extent that a customer would have received more securities or cash with respect to the al- location of customer property had the covered financial company been subject to a pro- ceeding under the Securities Investor Protec- tion Act (15 U.S.C. 78aaa et seq.) without the appointment of the Corporation as receiver, and with a filing date as of the date on which the Corporation is appointed as receiver. (g) Priorities (1) Customer property As trustee for a covered broker or dealer, SIPC shall allocate customer property and de- liver customer name securities in accordance with section 8(c) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78fff–2(c)). (2) Other claims All claims other than those described in paragraph (1) (including any unpaid claim by a customer for the allowed net equity claim of such customer from customer property) shall be paid in accordance with the priorities in section 5390(b) of this title. (h) Rulemaking The Commission and the Corporation, after consultation with SIPC, shall jointly issue rules to implement this section. (Pub. L. 111–203, title II, § 205, July 21, 2010, 124 Stat. 1456.) Editorial Notes REFERENCES IN TEXT The Securities Investor Protection Act of 1970, re- ferred to in text, is Pub. L. 91–598, Dec. 30, 1970, 84 Stat. 1636, which is classified generally to chapter 2B–1 (§ 78aaa et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see sec- tion 78aaa of Title 15 and Tables. This subchapter, referred to in text, was in the origi- nal ‘‘this title’’, meaning title II of Pub. L. 111–203, July 21, 2010, 124 Stat. 1442, which is classified principally to this subchapter. For complete classification of title II to the Code, see Tables. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of this title. § 5386. Mandatory terms and conditions for all orderly liquidation actions In taking action under this subchapter, the Corporation shall— (1) determine that such action is necessary for purposes of the financial stability of the United States, and not for the purpose of pre- serving the covered financial company; (2) ensure that the shareholders of a covered financial company do not receive payment until after all other claims and the Fund are fully paid; (3) ensure that unsecured creditors bear losses in accordance with the priority of claim provisions in section 5390 of this title; (4) ensure that management responsible for the failed condition of the covered financial company is removed (if such management has not already been removed at the time at which the Corporation is appointed receiver); (5) ensure that the members of the board of directors (or body performing similar func- tions) responsible for the failed condition of the covered financial company are removed, if such members have not already been removed at the time the Corporation is appointed as re- ceiver; and (6) not take an equity interest in or become a shareholder of any covered financial com- pany or any covered subsidiary. (Pub. L. 111–203, title II, § 206, July 21, 2010, 124 Stat. 1459.) Editorial Notes REFERENCES IN TEXT This subchapter, referred to in text, was in the origi- nal ‘‘this title’’, meaning title II of Pub. L. 111–203, July 21, 2010, 124 Stat. 1442, which is classified principally to this subchapter. For complete classification of title II to the Code, see Tables. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of this title. § 5387. Directors not liable for acquiescing in ap- pointment of receiver The members of the board of directors (or body performing similar functions) of a covered financial company shall not be liable to the shareholders or creditors thereof for acquiescing in or consenting in good faith to the appoint- ment of the Corporation as receiver for the cov- ered financial company under section 5383 of this title. (Pub. L. 111–203, title II, § 207, July 21, 2010, 124 Stat. 1459.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of this title. § 5388. Dismissal and exclusion of other actions (a) In general Effective as of the date of the appointment of the Corporation as receiver for the covered fi- nancial company under section 5382 of this title or the appointment of SIPC as trustee for a cov- ered broker or dealer under section 5385 of this title, as applicable, any case or proceeding com- menced with respect to the covered financial company under the Bankruptcy Code or the Se- curities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) shall be dismissed, upon no- tice to the bankruptcy court (with respect to a