15 U.S.C. § 77ooo — Duties and responsibility of the trustee

submitted 93 years ago by ch. 38 to r/title-15-COMMERCE-AND-TRADE · 837 words · no verdicts yet

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Before any default, the indenture must limit the trustee's duties to what it specifically requires. After a default, the trustee must use a prudent person's care. The indenture can't excuse the trustee's own negligence or willful misconduct.

(a) Duties before a default The indenture is automatically treated as providing (unless it expressly excludes this) that, before a default as the indenture defines it: (1) the trustee is liable only for failing to perform the specific duties the indenture actually sets out; and (2) the trustee may rely completely, without checking further, on properly conforming certificates or opinions — trusting the truth of their statements and correctness of their opinions, as long as it acts without bad faith — but the trustee must still examine evidence given to it under section 77nnn to determine whether it actually meets the indenture's requirements. (b) Notice of defaults The trustee must notify bondholders — in the manner section 77mmm(c) describes — of all defaults it knows about, within 90 days after they happen. But the indenture is automatically treated as providing that, except for a default in paying principal, interest, or a sinking or purchase fund installment, the trustee is protected in withholding that notice for as long as its board of directors, executive committee, or a trust committee of directors and/or responsible officers decides in good faith that withholding it serves bondholders' interests. (c) Duties during a default Once a default occurs (as the indenture defines it), the trustee must exercise the rights and powers the indenture gives it, using the same degree of care and skill a prudent person would use managing their own affairs under the circumstances. (d) The trustee's responsibility for its own conduct The indenture may not include any provision that relieves the trustee of liability for its own negligent action, its own negligent failure to act, or its own willful misconduct. Within that limit, though, the indenture is automatically treated as: (1) including the protections described in (a)(1) and (a)(2) above; (2) protecting the trustee from liability for an honest error in judgment made in good faith by a responsible officer, unless the trustee is proven to have been negligent in finding out the relevant facts; and (3) protecting the trustee for anything it does or doesn't do, in good faith, following the direction of holders of a majority of the outstanding bond principal (calculated as section 77ppp(a) provides), regarding the time, method, and place for pursuing any remedy or exercising any trust or power under the indenture. (e) Bond for litigation costs The indenture is automatically treated as providing that all parties, including bondholders, agree that a court may, in any suit to enforce a right or remedy under the indenture, or any suit against the trustee over something it did or didn't do as trustee, require a party to post a bond covering the suit's costs, and may assess reasonable costs — including attorney's fees — against a party, considering the merits and good faith of the claims or defenses raised. This bond requirement does not apply to: a suit brought by the trustee itself; a suit brought by bondholders holding, together, more than 10% of the outstanding bond principal; or a suit by any bondholder to enforce payment of principal or interest on or after its due date.

the actual law source: uscode.house.gov ↗public domain

(a) Duties prior to default

The indenture to be qualified shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to provide that, prior to default (as such term is defined in such indenture)—

(1)

the indenture trustee shall not be liable except for the performance of such duties as are specifically set out in such indenture; and

(2)

the indenture trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, in the absence of bad faith on the part of such trustee, upon certificates or opinions conforming to the requirements of the indenture;

but the indenture trustee shall examine the evidence furnished to it pursuant to section 77nnn of this title to determine whether or not such evidence conforms to the requirements of the indenture.

(b) Notice of defaults

The indenture trustee shall give to the indenture security holders, in the manner and to the extent provided in subsection (c) of section 77mmm of this title, notice of all defaults known to the trustee, within ninety days after the occurrence thereof: Provided, That such indenture shall automatically be deemed (unless it is expressly provided therein that such provision is excluded) to provide that, except in the case of default in the payment of the principal of or interest on any indenture security, or in the payment of any sinking or purchase fund installment, the trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers, of the trustee in good faith determine that the withholding of such notice is in the interests of the indenture security holders.

The indenture trustee shall exercise in case of default (as such term is defined in such indenture) such of the rights and powers vested in it by such indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(d) Responsibility of the trustee

The indenture to be qualified shall not contain any provisions relieving the indenture trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that—

(1)

such indenture shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain the provisions authorized by paragraphs (1) and (2) of subsection (a) of this section;

(2)

such indenture shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions protecting the indenture trustee from liability for any error of judgment made in good faith by a responsible officer or officers of such trustee, unless it shall be proved that such trustee was negligent in ascertaining the pertinent facts; and

(3)

such indenture shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions protecting the indenture trustee with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the indenture securities at the time outstanding (determined as provided in subsection (a) of section 77ppp of this title) relating to the time, method, and place of conducting any proceeding for any remedy available to such trustee, or exercising any trust or power conferred upon such trustee, under such indenture.

(e) Undertaking for costs

The indenture to be qualified shall automatically be deemed (unless it is expressly provided therein that any such provision is excluded) to contain provisions to the effect that all parties thereto, including the indenture security holders, agree that the court may in its discretion require, in any suit for the enforcement of any right or remedy under such indenture, or in any suit against the trustee for any action taken or omitted by it as trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorney’s fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant: Provided, That the provisions of this subsection shall not apply to any suit instituted by such trustee, to any suit instituted by any indenture security holder, or group of indenture security holders, holding in the aggregate more than 10 per centum in principal amount of the indenture securities outstanding, or to any suit instituted by any indenture security holder for the enforcement of the payment of the principal of or interest on any indenture security, on or after the respective due dates expressed in such indenture security.

Source credit: (May 27, 1933, ch. 38, title III, § 315, as added Aug. 3, 1939, ch. 411, 53 Stat. 1171; amended Pub. L. 101–550, title IV, § 414, Nov. 15, 1990, 104 Stat. 2730.)

history & why it existsrecord from the source credit

1933Enacted · Act of May 27, 1933, ch. 38 · 53 Stat. 1171
1990Amended · Pub. L. 101-550 · 104 Stat. 2730

A history note hasn’t been published yet. The record shows enactment by ch. 38 on 1933-05-27.

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