11 U.S.C. § 752 — Customer property

Page 214 TITLE 11—BANKRUPTCY § 752 HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 Section 751 requires the trustee to deliver a customer name security to the customer entitled to such secu- rity unless the customer has a negative net equity. The customer’s net equity will be negative when the amount owed by the customer to the stockbroker ex- ceeds the liquidation value of the non-customer name securities in the customer’s account. If the customer is a net debtor of the stockbroker, then the trustee may permit the customer to repay debts to the stockbroker so that the customer will no longer be in debt to the stockbroker. If the customer refuses to pay such amount, then the court may order the customer to en- dorse the security in order that the trustee may liq- uidate such property. § 752. Customer property (a) The trustee shall distribute customer prop- erty ratably to customers on the basis and to the extent of such customers’ allowed net equity claims and in priority to all other claims, except claims of the kind specified in section 507(a)(2) of this title that are attributable to the admin- istration of such customer property. (b)(1) The trustee shall distribute customer property in excess of that distributed under sub- section (a) of this section in accordance with section 726 of this title. (2) Except as provided in section 510 of this title, if a customer is not paid the full amount of such customer’s allowed net equity claim from customer property, the unpaid portion of such claim is a claim entitled to distribution under section 726 of this title. (c) Any cash or security remaining after the liquidation of a security interest created under a security agreement made by the debtor, ex- cluding property excluded under section 741(4)(B) of this title, shall be apportioned be- tween the general estate and customer property in the same proportion as the general estate of the debtor and customer property were subject to such security interest. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2614; Pub. L. 97–222, § 15, July 27, 1982, 96 Stat. 238; Pub. L. 98–353, title III, § 484, July 10, 1984, 98 Stat. 383; Pub. L. 109–8, title XV, § 1502(a)(3), Apr. 20, 2005, 119 Stat. 216.) HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 Section 752(a) requires the trustee to distribute cus- tomer property to customers based on the amount of their net equity claims. Customer property is to be dis- tributed in priority to all claims except expenses of ad- ministration entitled to priority under § 507(1). It is an- ticipated that the court will apportion such adminis- trative claims on an equitable basis between the gen- eral estate and the customer property of the debtor. Subsection (b)(1) indicates that in the event customer property exceeds customers net equity claims and ad- ministrative expenses, the excess pours over into the general estate. This event would occur if the value of securities increased dramatically after the order for re- lief but before liquidation by the trustee. Subsection (b)(2) indicates that the unpaid portion of a customer’s net equity claim is entitled to share in the general es- tate as an unsecured claim unless subordinated by the court under proposed 11 U.S.C. 501. A net equity claim of a customer that is subordinated under section 747 is entitled to share in distribution under section 726(a)(2) unless subordinated under section 510 independently of the subordination under section 747. Subsection (c) provides for apportionment between customer property and the general estate of any equity of the debtor in property remaining after a secured creditor liquidates a security interest. This might occur if a stockbroker hypothecates securities of his own and of his customers if the value of the hypoth- ecated securities exceeds the debt owed to the secured party. The apportionment is to be made according to the ratio of customer property and general property of the debtor that comprised the collateral. The sub- section refers to cash and securities of customers to in- clude any customer property unlawfully converted by the stockbroker in the course of such a transaction. The apportionment is made subject to section 741(4)(B) to insure that property in a customer’s account that is owed to the stockbroker will not be considered cus- tomer property. This recognizes the right of the stock- broker to withdraw money that has been erroneously placed in a customer’s account or that is otherwise owing to the stockbroker. Editorial Notes AMENDMENTS 2005—Subsec. (a). Pub. L. 109–8 substituted ‘‘507(a)(2)’’ for ‘‘507(a)(1)’’. 1984—Subsec. (a). Pub. L. 98–353, § 484(a), substituted ‘‘customers’ allowed’’ for ‘‘customers allowed’’, ‘‘except claims of the kind’’ for ‘‘except claims’’, and ‘‘such cus- tomer property’’ for ‘‘customer property’’. Subsec. (b)(2). Pub. L. 98–353, § 484(b), substituted ‘‘section 726’’ for ‘‘section 726(a)’’. 1982—Subsec. (c). Pub. L. 97–222 substituted ‘‘Any cash or security remaining after the liquidation of a se- curity interest created under a security agreement made by the debtor, excluding property excluded under section 741(4)(B) of this title, shall be apportioned be- tween the general estate and customer property in the same proportion as the general estate of the debtor and customer property were subject to such security inter- est’’ for ‘‘Subject to section 741(4)(B) of this title, any cash or security remaining after the liquidation of a se- curity interest created under a security agreement made by the debtor shall be apportioned between the general estate and customer property in the proportion that the general property of the debtor and the cash or securities of customers were subject to such security interest’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, 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. § 753. Stockbroker liquidation and forward con- tract merchants, commodity brokers, stock- brokers, financial institutions, financial par- ticipants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants Notwithstanding any other provision of this title, the exercise of rights by a forward con- tract merchant, commodity broker, stock- broker, financial institution, financial partici- pant, securities clearing agency, swap partici- pant, repo participant, or master netting agree- ment participant under this title shall not affect