View source for Trust Indenture Act of 1939

{{Infobox U.S. legislation
| shorttitle = Trust Indenture Act of 1939
| othershorttitles = 
| longtitle = <!--Starts "An act to..."-->
| colloquialacronym = 
| nickname = 
| enacted by = 76th
| effective date = 
| public law url = 
| cite public law = {{uspl|76|253}}
| cite statutes at large = {{usstat|53|1149}}
| acts amended = [[Securities Act of 1933]] (inserted as Title III)
| acts repealed = 
| title amended = <!--US code titles changed-->
| sections created = {{usc|15|77aaa|77bbbb}}
| sections amended = 
| leghisturl = 
| introducedin = Senate
| introducedbill = S. 2065
| introducedby = <!--sponsor(s)-->
| introduceddate = 
| committees = [[Senate Banking and Currency Committee]], [[United States House Committee on Energy and Commerce|House Interstate and Foreign Commerce Committee]]
| passedbody1 = Senate
| passeddate1 = May 2, 1939
| passedvote1 = 
| passedbody2 = House
| passedas2 = <!-- used if the second body changes the name of the legislation -->
| passeddate2 = July 19, 1939
| passedvote2 = 
| conferencedate = 
| passedbody3 = 
| passeddate3 = 
| passedvote3 = 
| agreedbody3 = Senate
| agreeddate3 = July 21, 1939
| agreedvote3 = <!-- used when the other body agrees without going into committee -->
| agreedbody4 = <!-- used if agreedbody3 further amends legislation -->
| agreeddate4 = <!-- used if agreedbody3 further amends legislation -->
| agreedvote4 = <!-- used if agreedbody3 further amends legislation -->
| passedbody4 = 
| passeddate4 = 
| passedvote4 = 
| signedpresident = [[Franklin D. Roosevelt]]
| signeddate = August 3, 1939
| amendments = [https://www.sec.gov/about/laws/tia39.pdf Act as amended (amendments noted by section)]
| SCOTUS cases = 
}}
The '''Trust Indenture Act of 1939''' (TIA), codified at {{usc|15|77aaa|77bbbb}}, supplements the [[Securities Act of 1933]] in the case of the distribution of [[Security (finance)#Debt|debt securities]] in the [[United States]]. Generally speaking, the TIA requires the appointment of a suitably independent and qualified trustee to act for the benefit of the holders of the securities, and specifies various substantive provisions for the trust [[indenture]] that must be entered into by the issuer and the trustee. The TIA is administered by the [[U.S. Securities and Exchange Commission]] (SEC), which has made various regulations under the act.

== History ==
Section 211 of The [[Securities Exchange Act of 1934]] mandated that the SEC conduct various studies. Although not expressly required to study the trustee system then in use for the issuance of debt securities, [[William O. Douglas]], who would later become a Commissioner and then Chair of the SEC, was convinced by November 1934 that the system needed legislative reform. In June 1936, the Protective Committee Study, headed by Douglas, published its report ''Trustees Under Indentures''.<ref>{{cite book |author=<!--Staff writer(s); no by-line.--> |title= Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective and Reorganization Committees: Part VI, Trustees under Indentures |url= http://the-ami.org/wp-content/uploads/2012/04/SEC_Report_Pt_VI_1936.pdf|location= Washington, DC|publisher= [[United States Government Publishing Office|Government Printing Office]] for the [[Securities and Exchange Commission]]|date= 1936|ref={{harvid|SEC|1936}}}}</ref> It recommended that:{{sfn|SEC|1936|pp=110{{En dash}}112}}

#trustees of [[indenture]]s be disqualified where they have or acquire [[conflicts of interest]] incompatible with their [[fiduciary]] obligations;
#they be transformed into active trustees with respect to their obligations; and
#legislation separate from the [[Securities Exchange Act of 1934]] would be more appropriate to govern this matter.

The Trust Indenture Act was subsequently passed and signed into law in August 1939. Its [[legislative history]] shows that that Congress intended to address deficiencies prevalent in trust indentures at the time:{{sfn|Bagby|Maman|Gwen|2015|p=2}}

:* the failure of indentures to require evidence of an obligor’s performance thereunder,
:* the lack of [[Prospectus (finance)|disclosure]] and reporting requirements, and
:* the presence of significant obstacles to collective [[bondholder]] action.<ref>S. Rep. No. 76-248, at 1–2 (1939)</ref>

== Framework ==

=== Regulatory ===
Subject to certain exceptions, it is unlawful for any person to sell notes, bonds, or debentures in interstate commerce unless the security has been issued under an indenture and qualified under the Act.{{sfn|Huff|2011|p=1}} Trustees appointed under such indentures have specified duties:

:* §&nbsp;314(d) requires certificates and opinions as to the fair value of the collateral being released,{{sfn|Huff|2011|p=2}} but relief in the form of a "no-action letter" is available from the SEC in certain circumstances{{sfn|Huff|2011|pp=2{{En dash}}3}}
:* §&nbsp;313(b) requires specified reports to holders with respect to the release of collateral{{sfn|Huff|2011|p=1}}

Complications as to financial reporting requirements can arise where the indentures are secured by a pledge of stock, in which case Rule 3-16 of [[Regulation S-X]] may come into play.{{sfn|Huff|2011|p=5}} Many issuers attempt to mitigate the impact by inserting "collateral cut-back" provisions into their indentures,{{sfn|Huff|2011|p=6}} but the SEC has not endorsed the concept that such a cut-back does not constitute a release of collateral.{{sfn|Huff|2011|p=6}}

=== Statutory prohibition of impairment ===
§&nbsp;316(b) provides that "the right of any holder of any indenture security to receive payment of the principal of and interest on such indenture security, on or after the respective due dates expressed in such indenture security, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder..." This prohibition is subject to several exceptions:

:* the temporary postponement of interest payments under §&nbsp;316(a)(2){{sfn|Shuster|2006|pp=435{{En dash}}436}}
:* an indenture  may contain a provision limiting or denying the right of a bondholder to sue if and to the extent that that suit would, under applicable law, result in an adverse effect on a lien securing  the  bonds.{{sfn|Shuster|2006|p=436}}
:* an application under [[Chapter 11]] of the [[Bankruptcy in the United States|Bankruptcy Code]]{{sfn|Shuster|2006|p=437}}

This provision saw little litigation prior to 1992.{{sfn|Bagby|Maman|Gwen|2015|p=3}} Recent jurisprudence (especially in the [[United States District Court for the Southern District of New York|Southern District of New York]]) has expanded its reach, holding that the Act "protects the ''ability'', and not merely the formal right, to receive payment in some circumstances,"<ref>{{cite court |litigants= Marblegate Asset Mgmt. v. Educ. Mgmt. Corp.|vol= 2014|reporter= BL|opinion= 366259|pinpoint= 1-2|court= S.D.N.Y.|date= December 30, 2014|url= http://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2014cv08584/434146/59/|accessdate= |quote=}}</ref> and ruling that impairment includes [[asset stripping|stripping a company's assets]] and removing any corporate [[guarantee]]s.{{sfn|Bagby|Maman|Gwen|2015|p=5}} While this may result in more distressed issuers resorting to [[Chapter 11]] to pursue restructuring efforts, other issuers may be prohibited from filing for such relief{{em dash}}by virtue of their reliance on federal funding or otherwise{{em dash}}and thus may be precluded from altering the repayment terms of their bond debt altogether.{{sfn|Seider|Simon|Hammerman|Reilly|2015|p=3}}

== See also ==
{{Div col|colwidth=22em}}
* [[Securities regulation in the United States]]
* [[Commodity Futures Trading Commission]]
* [[Securities commission]]
* [[Chicago Stock Exchange]]
* [[Financial regulation]]
* [[List of financial regulatory authorities by country]]
* [[NASDAQ]]
* [[New York Stock Exchange]]
* [[Stock exchange]]
* [[Regulation D (SEC)]]
{{div col end}}

=== Related legislation ===
{{Div col|colwidth=22em}}
* 1933 – [[Securities Act of 1933]]
* 1934 – [[Securities Exchange Act of 1934]]
* 1938 – [[Temporary National Economic Committee]] (establishment)
* 1939 – Trust Indenture Act of 1939
* 1940 – [[Investment Advisers Act of 1940]]
* 1940 – [[Investment Company Act of 1940]]
* 1968 – [[Williams Act]] (Securities Disclosure Act)
* 1975 – [[Securities Acts Amendments of 1975]]
* 1982 – [[Garn–St. Germain Depository Institutions Act]]
* 1999 – [[Gramm-Leach-Bliley Act]]
* 2000 – [[Commodity Futures Modernization Act of 2000]]
* 2002 – [[Sarbanes–Oxley Act]]
* 2006 – [[Credit Rating Agency Reform Act]] of 2006
* 2010 – [[Dodd–Frank Wall Street Reform and Consumer Protection Act]]
{{div col end}}

== References ==
{{Reflist|25em}}

== Further reading ==
* {{cite web |url= http://www.kirkland.com/siteFiles/Publications/CMAlert_021511.pdf|title= Securities Law and Practical Implications of Issuing Secured Bonds|last1= Huff|first1= Carol Anne|date= February 2011|location= Chicago|publisher= Kirkland & Ellis LLP}}
* {{cite web |url= http://www.lw.com/thoughtLeadership/lw-bondholders-trust-indenture-act|title= A New Tool for Holdout Bondholders: The Trust Indenture Act|last1= Seider|first1= Mitchell A.|last2= Simon|first2= Keith A.|last3= Hammerman|first3= David A.|last4= Reilly|first4= Annemarie V.|date= January 22, 2015|location= New York|publisher= Latham & Watkins}}
* {{cite journal |last= Shuster|first= George W. Jr.|date= 2006|title= The Trust Indenture Act and International Debt Restructurings|url= https://www.wilmerhale.de/files/publication/e79aec06-3ebb-46c4-ba7a-ea110014e388/presentation/publicationattachment/22f88569-bbaa-4ed5-8a25-ba4fda705123/shuster_trustindentureact_debtrestructurings.pdf|journal= ABI Law Review|volume= 14|pages= 431{{En dash}}467}}
* {{cite journal |last= Bagby|first= Ingrid M.|last2= Maman|first2= Michele C. |last3= Gwen|first3= Daniel P.|date= 2015|title= Trust Indenture Act of 1939: A Sleeping Statute Comes Back to Life|url= http://www.cadwalader.com/uploads/books/dcd11e04b5828158b0786ef2655fc4f9.pdf|journal=  BNA's Bankruptcy Law Reporter|publisher= Bloomberg|volume= 27|pages= 706|issn=  1044-7474}}

== External links ==
*[https://www.sec.gov/about/laws/tia39.pdf Text of the TIA]
*{{CodeFedReg|17|260}} - General Rules and Regulations, Trust Indenture Act of 1939
*{{CodeFedReg|17|261}} - Interpretative Releases relating to the Trust Indenture Act of 1939 and General Rules and Regulations Thereunder
*{{CodeFedReg|17|269}} - Forms prescribed under the Trust Indenture Act of 1939
* [https://www.sec.gov/divisions/corpfin/forms/trustact.shtml SEC forms under TIA]
* [http://www.abanet.org/dch/committee.cfm?com=CL700000 ABA Section of Business Law Committee on Trust Indentures and Indenture Trustees]

{{Authority control}}

[[Category:1939 in American law]]
[[Category:United States federal securities legislation]]
[[Category:76th United States Congress]]