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

(a) Appointment of SIPC^* as trustee. (1) Appointment. When the Corporation is appointed receiver for a covered broker or dealer^*, it must appoint the Securities Investor Protection Corporation (SIPC), without court^* approval, as trustee to liquidate the broker or dealer under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.).

(2) SIPC's actions. (A) Filing. After SIPC is appointed under paragraph (1), it must promptly file with a Federal district court of competent jurisdiction 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.) for the covered broker or dealer. The Federal district court must accept and approve the filing, including outside normal business hours, and must immediately issue the protective decree for the covered broker or dealer. (B) Administration by SIPC. After the protective decree is entered, and except as this section otherwise provides, SIPC must administer under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) the determination of claims and the liquidation of assets that remain in the receivership of the covered broker or dealer and were not transferred to the bridge financial company^*. SIPC acts as trustee for the covered broker or dealer. (C) Meaning of “filing date.” For the liquidation proceeding, “filing date” means the date on which the Corporation is appointed receiver of the covered broker or dealer. This section does not otherwise define the term. (D) Determining claims. As trustee for the covered broker or dealer, SIPC must determine and satisfy, consistently with this subchapter and the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), all claims against the covered broker or dealer that arise on or before the filing date.

(b) Powers and duties of SIPC. (1) In general. Except as this section provides, when SIPC is appointed trustee for the liquidation of a covered broker or dealer, SIPC has all powers and duties provided by the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), including, without limitation, all rights of action against third parties. SIPC must conduct the liquidation under that Act. SIPC has no powers or duties concerning assets and liabilities that the Corporation transfers from the covered broker or dealer to a bridge financial company^* established under this subchapter.

(2) Limits on those powers. SIPC's exercise of its powers and functions as trustee under subsection (a) must not impair or impede the Corporation's exercise of its powers and duties concerning—(A) any action, except as this subchapter otherwise provides, to: (i) make funds available under section 5384(d) of this title; (ii) organize, establish, operate, or terminate a bridge financial company^*; (iii) transfer assets and liabilities; (iv) enforce or repudiate contracts; or (v) take any other action relating to that bridge financial company under section 5390 of this title; or (B) determining claims under subsection (e).

(3) Protective decree. SIPC and the Corporation, after consulting the Commission, must jointly determine the terms of the protective decree that SIPC must file with a court of competent jurisdiction under section 78u or 78aa of title 15, as required by subsection (a).

(4) Qualified financial contracts. Despite anything contrary in the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), including section 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 to which a covered broker or dealer for which the Corporation has been appointed receiver is a party are governed only by section 5390 of this title. This includes the limitations and restrictions in section 5390(c)(10)(B) of this title. “Qualified financial contract” is defined in section 5390(c)(8) of this title, not in this section.

(c) Limits on court action. Unless this subchapter provides otherwise, no court may take any action, including under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) or the Bankruptcy Code^*, to restrain or affect the Corporation's exercise of its powers or functions as receiver for a covered broker or dealer. Any claim^* against the Corporation in that capacity must be determined under subsection (e), and the claim is limited to money damages.

(d) Corporation's actions as receiver. (1) In general. Despite any other provision of this subchapter, no action the Corporation takes as receiver concerning a covered broker or dealer may: (A) adversely affect a customer's rights to customer property or customer name securities; (B) reduce the amount or timely payment of customers' net equity claims; or (C) otherwise impair the recoveries that the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) provides to a customer. (2) Net proceeds. Net proceeds from a transfer, sale, or disposition of the covered broker or dealer's assets, or proceeds from those assets received by the Corporation as receiver for the covered broker or dealer, are for the benefit of the estate of the covered broker or dealer, as this subchapter provides.

(e) Claims against the Corporation as receiver. Any claim against the Corporation as receiver for a covered broker or dealer concerning assets transferred to a bridge financial company established for that covered broker or dealer: (1) must be determined under section 5390(a)(2) of this title; and (2) may be reviewed by the appropriate district or territorial court of the United States under section 5390(a)(5) of this title.

(f) Satisfying customer claims. (1) Customer obligations. Despite any other provision of this subchapter, all obligations of a covered broker or dealer or of a bridge financial company established for that covered broker or dealer to a customer relating to customer property or customer name securities, or net equity claims based on customer property or customer name securities, must be promptly discharged by SIPC, the Corporation, or the bridge financial company, as applicable. This must be done by delivering securities or making payments to or for the customer's account, in a manner and amount at least as beneficial to the customer as if the actual proceeds from liquidating the covered broker or dealer under this subchapter had been distributed in a proceeding under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) without appointing the Corporation receiver and without transferring assets or liabilities to a bridge financial company, with the filing date set as the date the Corporation is appointed receiver. (2) SIPC's satisfaction of claims. As trustee for a covered broker or dealer, SIPC must satisfy customer claims in the manner and amount provided by the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), as if the Corporation had not been appointed receiver, and with the filing date set as the date the Corporation is appointed receiver. The Corporation must satisfy customer claims to the extent that a customer would have received more securities or cash for the allocation of customer property if the covered financial company^* had been subject to a proceeding under the Securities Investor Protection Act (15 U.S.C. 78aaa et seq.) without the Corporation's appointment as receiver, and with the filing date set as the date the Corporation is appointed receiver.

(g) Priorities. (1) Customer property. As trustee for a covered broker or dealer, SIPC must allocate customer property and deliver customer name securities under 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 an unpaid customer claim for that customer's allowed net equity claim from customer property, must be paid according to the priorities in section 5390(b) of this title.

(h) Rulemaking. The Commission and the Corporation, after consulting SIPC, must jointly issue rules to implement this section.