15 U.S.C. § 77kkk — Preferential collection of claims against obligor

(a) Trustee as creditor of the obligor This subsection applies if the indenture trustee is, or becomes, a creditor of the obligor on the bonds — directly or indirectly, secured or unsecured — either within three months before a default (as defined at the end of this subsection) or any time after one. Unless and until the default is cured, the trustee must set aside, in a special account held for itself and the bondholders together: (1) any amount by which its claim as creditor was reduced — in respect of principal or interest — after the three-month period began, if that reduction is valid against the obligor and its other creditors, except a reduction resulting from property covered by (2) below, or from a setoff the trustee could have used anyway if the obligor had gone bankrupt on the default date; and (2) all property the trustee received on account of its claim as creditor — as security, in satisfaction, in a settlement, or otherwise — after the three-month period began, or an amount equal to the proceeds if that property was sold, subject to any rights the obligor and its other creditors may have in the property or proceeds. Nothing here affects the trustee's right to: (A) keep for itself payments made on the claim by anyone other than the obligor, proceeds from a genuine sale of the claim to a third party, and cash, securities, or other property it receives as distributions on claims filed in the obligor's bankruptcy, receivership, or reorganization; (B) keep for itself anything it recovers from property that was already held as security before the three-month period began; (C) keep for itself, but only up to the amount of that specific claim, anything it recovers from property received as security at the same time a new claim was created after the three-month period began — if the trustee proves it had no reasonable cause to expect a default within three months when it took the security; or (D) get paid on a claim covered by (B) or (C) in exchange for releasing the security, up to the property's fair value. Property substituted for other security keeps the same status as the property it replaced, to the extent of the released property's fair value. A claim created to renew, replace, repay, or refund an earlier claim of the trustee keeps that earlier claim's status. If the trustee is required to account, the money and property in the special account (and its proceeds) must be divided between the trustee and the bondholders so that each realizes the same percentage recovery on their respective claims — counted before crediting the special-account funds and before crediting any bankruptcy or reorganization dividends, but after crediting whatever each side already collected from other sources. "Dividends" here means any distribution on a claim in bankruptcy, receivership, or reorganization, in cash, securities, or other property, but not a distribution on the secured portion of a claim. The court handling the bankruptcy, receivership, or reorganization can either (i) divide the special account and its proceeds between the trustee and bondholders under this formula directly, or (ii) instead simply give this formula appropriate weight in deciding whether the overall distribution to the trustee and bondholders is fair, without needing to value the property precisely, allocate distributions between secured and unsecured portions, or apply the formula exactly. A trustee who resigned or was removed after the three-month period began is still covered by this subsection as if it hadn't resigned or been removed. A trustee who resigned or was removed before the three-month period began is covered only if (i) the property receipt or claim reduction that would have triggered accounting happened after the three-month period began, and (ii) that happened within three months after the resignation or removal. "Default," in this subsection, means any failure to pay principal or interest in full when due, under an indenture qualified under this subchapter, where the trustee is directly or indirectly a creditor of the same obligor. "Indenture security holder" means all bondholders under an indenture where such a default exists. For bankruptcy cases begun under the Bankruptcy Act of 1898 or its amendments enacted before November 6, 1978, every reference here to "three months" instead means "four months." (b) Relationships excluded from this rule The indenture is automatically treated as excluding these creditor relationships from subsection (a), unless it expressly says otherwise: (1) owning or acquiring securities issued under any indenture, or any security with a maturity of one year or more at the time the trustee acquired it; (2) advances authorized by a receivership or bankruptcy court, or by the indenture, to preserve the mortgaged property or to pay off tax liens or other prior liens, if bondholders are given notice of the advance and its circumstances as the indenture requires; (3) routine disbursements the trustee makes in its ordinary role as trustee, transfer agent, registrar, custodian, paying agent, fiscal agent, depositary, or similar capacity; (4) debts created by services the trustee rendered or premises it rented, or by goods or securities it sold for cash as the indenture defines that term; (5) owning stock or other securities of a corporation organized under section 25(a) of the Federal Reserve Act (12 U.S.C. 611 et seq.) that is itself, directly or indirectly, a creditor of the obligor; or (6) acquiring, owning, accepting, or negotiating drafts, bills of exchange, acceptances, or obligations that qualify as self-liquidating paper under the indenture.