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The
Investment Company Act of 1940





Section 29 -- Bankruptcy of Face-Amount Certificate Companies (NULL AND VOID)


Editor's Note: Section 29 of the Investment Company Act (ICA) of 1940 was actually an amendment to the Bankruptcy Act of 1898 and was never codified with sections 1-28 and 30-65 of the ICA in Title 15 of the United States Code. Upon codification sections 1-28 became 15 U.S.C. 80a-1 through 80a-28, and sections 30-65 became 15 U.S.C. 80a-29 through 80a-64. (Therefore, 80a-29 is section 30 of the Act, 80a-30 is section 31, and so on.) The Bankruptcy Act of 1898 was repealed and replaced by the Bankruptcy Reform Act of 1978 (P.L. 95-598, 92 Stat. 2549). Consequently, the amendments contained in section 29 are null and void. The text of section 29 below is presented for informational purposes only.
  1. Section 67 of an Act entitled "An Act to establish a uniform system of bankruptcy throughout the United States", approved July 1, I898, as amended, is amended by adding at the end thereof the following:

    1. For the purposes of, and exclusively applicable to, this subdivision (a) 'debtor' shall mean a face-amount certificate company as defined in section 4 of the Investment Company Act of 1940; (b) 'face-amount certificate' shall mean a face-amount certificate as defined in section 2 of the Investment Company Act of 1940; (c) 'depositary' is a person or State agency with whom securities or other property of a debtor is deposited or to whom property of a debtor is transferred, in trust or otherwise, pursuant to the requirements of a State law or an agreement by the debtor providing for the distribution of such property or its proceeds to creditors or security holders of the debtor in the event of the insolvency of the debtor or under other specified circumstances; (d) 'deposit creditor' is a creditor who, under the provisions of a State law or agreement providing for a deposit with or transfer to a depositary, has rights as to the securities or property so deposited or transferred which exceed the rights of a general creditor; and (e) 'State agency' is an official or agency of a State designated to act as depositary or to distribute property, or the proceeds of property held by a depositary.

    2. Every deposit or transfer of securities or other property made by or on behalf of a debtor with or to any depositary for the benefit or protection of or to secure the holder of any security sold by or on behalf of the debtor on or after January 1, 1941, shall be voidable as against the trustee of such debtor if the property of the estate is insufficient for the full payment and discharge of all claims on account of all face-amount certificates sold by or on behalf of the debtor, and such deposit or transfer and every lien created thereby shall thereupon be avoided by the trustee subject to the provisions of paragraph 3 of this subdivision.

    3. In the event any deposit or transfer described in paragraph 2 of this subdivision shall be avoided the trustee shall segregate the property received by the trustee from the depositary and charge the same with the costs and expenses of maintenance and liquidation and distribute the net proceeds thereof to the creditors who would have been entitled thereto under the provisions of the law or agreement providing for the deposit or transfer of the property, and each such creditor shall thereafter be entitled to dividends from the estate only after all creditors of the same rank shall have received the same percentage.

    4. The court shall have summary jurisdiction of any proceedings to hear and determine the rights of any parties under this subdivision and to hear and determine the sufficiency of the property of the estate for the full payment and discharge of all claims on account of all face-amount certificates sold by or on behalf of the debtor. Due notice of any hearing in such proceedings shall be given to every depositary and State agency which is a party in Interest.

    5. Where the provisions of subsection (c) of section 28 are not applicable, the provisions of this section will not apply.

  2. Section 44 of said Act of July 1, 1898, as amended, is amended by adding at the end of subdivision (a) thereof the following sentence:
    "If the bankrupt is a face-amount certificate company, as defined in section 4 of the Investment Company Act of 1940, the court alone shall make the appointment; but the court shall not make such appointment without first notifying the Securities and Exchange Commission and giving it an opportunity to be heard."


Legislative History


Aug. 22, 1940, ch 686, Title I, § 30, 54 Stat. 836;

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