Liquidation, reorganization, or recapitalization of a covered financial corporation

Chapter 11 of title 11, United States Code, is amended by adding at the end the following:

Liquidation, Reorganization, or Recapitalization of a Covered Financial Corporation

1181.

Inapplicability of other sections

Sections 303 and 321(c) do not apply in a case under this subchapter concerning a covered financial corporation.

1182.

Definitions for this subchapter

In this subchapter, the following definitions shall apply: (1)The term Board means the Board of Governors of the Federal Reserve System. (2)The term bridge company means a newly formed corporation to which property of the estate may be transferred under section 1185(a) and the equity securities of which may be transferred to a special trustee under section 1186(a). (3)The term capital structure debt means all unsecured debt of the debtor for borrowed money, other than a qualified financial contract, for which the debtor is the primary obligor other than debt secured by a lien on property of the estate that is to be transferred to a bridge company pursuant to an order of the court under section 1185(a). (4)The term contractual right means a contractual right of a kind defined in section 555, 556, 559, 560, or 561. (5)The term qualified financial contract means any contract of a kind defined in paragraph (25), (38A), (47), or (53B) of section 101, section 741(7), or paragraph (4), (5), (11), or (13) of section 761. (6)The term special trustee means the trustee of a trust formed under section 1186(a)(1).

1183.

Commencement of a case concerning a covered financial corporation

(a)A case under this subchapter concerning a covered financial corporation may be commenced by the filing of a petition with the court— (1)by the debtor under section 301 only if the debtor states to the best of its knowledge under penalty of perjury in the petition that it is a covered financial corporation; or (2)by the Board only if the Board states to the best of its knowledge under penalty of perjury in the petition that— (A)the debtor is a covered financial corporation that— (i)has incurred losses that will deplete all or substantially all of the capital of the covered financial corporation, and there is no reasonable prospect for the covered financial corporation to avoid such depletion; (ii)is insolvent; (iii)is not paying, or is unable to pay, the debts of the covered financial corporation (other than debts subject to a bona fide dispute as to liability or amount) as they become due; or (iv)is likely to be in a financial condition specified in clause (i), (ii), or (iii) sufficiently soon such that the immediate commencement of a case under this subchapter is necessary to prevent serious adverse effects on financial stability in the United States; and (B)the commencement of a case under this title and effecting a transfer under section 1185 is necessary to prevent serious adverse effects on financial stability in the United States. (b) (1)Unless the debtor consents to an order for relief, the court shall hold a hearing on the Board’s petition under subsection (a)(2) as soon as practicable but not later than 16 hours after the Board files such a petition, with notice only to— (A)the covered financial corporation; (B)the Federal Deposit Insurance Corporation; (C)the Office of the Comptroller of the Currency of the Department of the Treasury; and (D)the Secretary of the Treasury. (2)Only the Board and the entities specified in paragraph (1) and their counsel may participate in a hearing described in this subsection. The Board or the trustee may request that pleadings, hearings, transcripts, and orders in connection with a hearing described in this subsection be sealed if their disclosure could create financial instability in the United States. (3)All pleadings, hearings, transcripts, and orders sealed under paragraph (2) shall be available to only the court, the appellate panel, the covered financial corporation, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency of the Department of the Treasury, the Secretary of the Treasury, and the Board. Notwithstanding paragraph (2), if the case is dismissed, all court documents, including pleadings, hearings, transcripts, and orders, shall be permanently sealed. (c) (1)The commencement of a case under subsection (a)(1) constitutes an order for relief under this subchapter. (2)In a case commenced under subsection (a)(2), after notice and hearing required under subsection (b) and not later than 18 hours after the filing of the Board’s petition, the court shall enter— (A)an order for relief— (i)if the Board has shown at the hearing under this subsection that the requirements under subsection (a)(2) are supported by a preponderance of the evidence; or (ii)if the debtor consents to the Board’s petition under subsection (a)(2); or (B)an order dismissing the case. (d) (1)The covered financial corporation or the Board may appeal to the court of appeals from an order entered by the court under subsection (c)(2) not later than 1 hour after the court enters such order, with notice only to the entities specified in subsection (b)(1) and the Board. Such order shall be stayed pending such appeal. (2)The appellate panel specified under section 298(c)(1) of title 28 for the judicial circuit in which the case is pending shall hear the appeal under paragraph (1) within 12 hours of the filing of the notice of appeal under this subsection. The standard of review shall be abuse of discretion. The appellate panel shall enter an order determining the matter that is the subject of the appeal not later than 14 hours after the notice of appeal is filed. (3)The court may not, on account of an appeal from an order for relief under section 1183(d)(1), delay any proceeding under section 1185, except that the court shall not authorize a transfer under section 1185 before the determination of the appeal. (e)The members of the board of directors (or body performing similar functions) of a covered financial company shall have no liability to shareholders, creditors or other parties in interest for a good faith filing or consenting in good faith to a petition with respect to a case under this subchapter, or for any reasonable action taken in good faith in contemplation of or in connection with such a petition or a transfer under section 1185 or section 1186, whether prior to or after commencement of the case. (f)Counsel to the debtor or the Board shall provide, to the greatest extent practicable, sufficient confidential notice to the Office of Court Services of the Administrative Office of the United States Courts regarding the potential commencement of a subchapter V case without disclosing the identity of the potential debtor in order to allow such office to randomly designate and ensure the ready availability of one of the bankruptcy judges designated under section 298(b)(1) of title 28 to be available to preside over such subchapter V case.

1184.

Regulators

The Board, the Securities Exchange Commission, the Office of the Comptroller of the Currency of the Department of the Treasury, and the Federal Deposit Insurance Corporation may raise and may appear and be heard on any issue in any case or proceeding under this subchapter.

1185.

Special transfer of property of the estate

(a)On request of the trustee or the Board, and after notice and a hearing that shall occur not less than 24 hours after the order for relief, the court may order a transfer under this section of property of the estate, and the assignment of executory contracts, unexpired leases, and qualified financial contracts of the debtor, to a bridge company. Upon the entry of an order approving such transfer, any property transferred, and any executory contracts, unexpired leases, and qualified financial contracts assigned under such order shall no longer be property of the estate. Except as provided under this section, the provisions of sections 363 and 365 shall apply to a transfer and assignment under this section. (b)Unless the court orders otherwise, notice of a request for an order under subsection (a) shall consist of electronic or telephonic notice of not less than 24 hours to— (1)the debtor; (2)the holders of the 20 largest secured claims against the debtor; (3)the holders of the 20 largest unsecured claims against the debtor; (4)counterparties to any debt, executory contract, unexpired lease, and qualified financial contract requested to be transferred under this section; (5)the Board; (6)the Federal Deposit Insurance Corporation; (7)the Secretary of the Treasury and the Office of the Comptroller of the Currency of the Treasury; (8)the Securities and Exchange Commission; (9)the United States trustee or bankruptcy administrator; and (10)each primary financial regulatory agency, as defined in section 2(12) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, with respect to any affiliate the equity securities of which are proposed to be transferred under this section. (c)The court may not order a transfer under this section unless the court determines, based upon a preponderance of the evidence, that— (1)the transfer under this section is necessary to prevent serious adverse effects on financial stability in the United States; (2)the transfer does not provide for the assumption of any capital structure debt by the bridge company; (3)the transfer does not provide for the transfer to the bridge company of any property of the estate that is subject to a lien securing a debt, executory contract, unexpired lease or agreement of the debtor unless— (A) (i)the bridge company assumes such debt, executory contract, unexpired lease or agreement, including any claims arising in respect thereof that would not be allowed secured claims under section 506(a)(1) and after giving effect to such transfer, such property remains subject to the lien securing such debt, executory contract, unexpired lease or agreement; and (ii)the court has determined that assumption of such debt, executory contract, unexpired lease or agreement by the bridge company is in the best interests of the estate; or (B)such property is being transferred to the bridge company in accordance with the provisions of section 363; (4)the transfer does not provide for the assumption by the bridge company of any debt, executory contract, unexpired lease or agreement of the debtor secured by a lien on property in which the estate has an interest unless the transfer provides for such property to be transferred to the bridge company in accordance with paragraph (3)(A) of this subsection; (5)the transfer does not provide for the transfer of the equity of the debtor; (6)the party requesting the transfer under this subsection has demonstrated that the bridge company is not likely to fail to meet the obligations of any debt, executory contract, qualified financial contract, or unexpired lease assumed and assigned to the bridge company; (7)the transfer provides for the transfer to a special trustee all of the equity securities in the bridge company and appointment of a special trustee in accordance with section 1186; (8)after giving effect to the transfer, adequate provision has been made for the fees, costs, and expenses of the estate and special trustee; and (9)the bridge company will have governing documents, and initial directors and senior officers, that are in the best interest of creditors and the estate. (d)Immediately before a transfer under the section, the bridge company that is the recipient of the transfer shall— (1)not have any property, executory contracts, unexpired leases, or debts, other than any property acquired or executory contracts, unexpired leases, or debts assumed when acting as a transferee of a transfer under this section; and (2)have equity securities that are property of the estate, which may be sold or distributed in accordance with this title.

1186.

Special trustee

(a) (1)An order approving a transfer under section 1185 shall require the trustee to transfer to a qualified and independent special trustee all of the equity securities in the bridge company that is the recipient of a transfer under section 1185 to hold in trust for the sole benefit of the estate, subject to satisfaction of the special trustee’s fees, costs, and expenses. The trust of which the special trustee is the trustee shall be a newly formed trust governed by a trust agreement approved by the court as in the best interests of the estate, and shall exist for the sole purpose of holding and administering, and shall be permitted to dispose of, the equity securities of the bridge company in accordance with the trust agreement. (2)In connection with the hearing to approve a transfer under section 1185, the trustee shall confirm to the court that the Board has been consulted regarding the identity of the proposed special trustee and advise the court of the results of such consultation. (b)The trust agreement governing the trust shall provide— (1)for the payment of the fees, costs, expenses, and indemnities of the special trustee from the assets of the debtor’s estate; (2)that the special trustee provide— (A)quarterly reporting to the estate, which shall be filed with the court; and (B)information about the bridge company reasonably requested by a party in interest to prepare a disclosure statement for a plan providing for distribution of any securities of the bridge company if such information is necessary to prepare such disclosure statement; (3)that for as long as the equity securities of the bridge company are held by the trust, the special trustee shall file a notice with the court in connection with— (A)any change in a director or senior officer of the bridge company; (B)any modification to the governing documents of the bridge company; and (C)any material corporate action of the bridge company, including— (i)recapitalization; (ii)a material borrowing; (iii)termination of an intercompany debt or guarantee; (iv)a transfer of a substantial portion of the assets of the bridge company; or (v)the issuance or sale of any securities of the bridge company; (4)that any sale of any equity securities of the bridge company shall not be consummated until the special trustee consults with the Federal Deposit Insurance Corporation and the Board regarding such sale and discloses the results of such consultation with the court; (5)that, subject to reserves for payments permitted under paragraph (1) provided for in the trust agreement, the proceeds of the sale of any equity securities of the bridge company by the special trustee be held in trust for the benefit of or transferred to the estate; (6)the process and guidelines for the replacement of the special trustee; and (7)that the property held in trust by the special trustee is subject to distribution in accordance with subsection (c). (c) (1)The special trustee shall distribute the assets held in trust— (A)if the court confirms a plan in the case, in accordance with the plan on the effective date of the plan; or (B)if the case is converted to a case under chapter 7, as ordered by the court. (2)As soon as practicable after a final distribution under paragraph (1), the office of the special trustee shall terminate, except as may be necessary to wind up and conclude the business and financial affairs of the trust. (d)After a transfer to the special trustee under this section, the special trustee shall be subject only to applicable nonbankruptcy law, and the actions and conduct of the special trustee shall no longer be subject to approval by the court in the case under this subchapter.

1187.

Temporary and supplemental automatic stay; assumed debt

(a) (1)A petition filed under section 1183 operates as a stay, applicable to all entities, of the termination, acceleration, or modification of any debt, contract, lease, or agreement of the kind described in paragraph (2), or of any right or obligation under any such debt, contract, lease, or agreement, solely because of— (A)a default by the debtor under any such debt, contract, lease, or agreement; or (B)a provision in such debt, contract, lease, or agreement, or in applicable nonbankruptcy law, that is conditioned on— (i)the insolvency or financial condition of the debtor at any time before the closing of the case; (ii)the commencement of a case under this title concerning the debtor; (iii)the appointment of or taking possession by a trustee in a case under this title concerning the debtor or by a custodian before the commencement of the case; or (iv)a credit rating agency rating, or absence or withdrawal of a credit rating agency rating— (I)of the debtor at any time after the commencement of the case; (II)of an affiliate during the period from the commencement of the case until 48 hours after such order is entered; (III)of the bridge company while the trustee or the special trustee is a direct or indirect beneficial holder of more than 50 percent of the equity securities of— (aa)the bridge company; or (bb)the affiliate, if all of the direct or indirect interests in the affiliate that are property of the estate are transferred under section 1185; or (IV)of an affiliate while the trustee or the special trustee is a direct or indirect beneficial holder of more than 50 percent of the equity securities of— (aa)the bridge company; or (bb)the affiliate, if all of the direct or indirect interests in the affiliate that are property of the estate are transferred under section 1185. (2)A debt, contract, lease, or agreement described in this paragraph is— (A)any debt (other than capital structure debt), executory contract, or unexpired lease of the debtor (other than a qualified financial contract); (B)any agreement under which the debtor issued or is obligated for debt (other than capital structure debt); (C)any debt, executory contract, or unexpired lease of an affiliate (other than a qualified financial contract); or (D)any agreement under which an affiliate issued or is obligated for debt. (3)The stay under this subsection terminates— (A)for the benefit of the debtor, upon the earliest of— (i)48 hours after the commencement of the case; (ii)assumption of the debt, contract, lease, or agreement by the bridge company under an order authorizing a transfer under section 1185; or (iii)a final order of the court denying the request for a transfer under section 1185; and (B)for the benefit of an affiliate, upon the earliest of— (i)the entry of an order authorizing a transfer under section 1185 in which the direct or indirect interests in the affiliate that are property of the estate are not transferred under section 1185; (ii)a final order by the court denying the request for a transfer under section 1185; or (iii)48 hours after the commencement of the case if the court has not ordered a transfer under section 1185. (4)Subsections (d), (e), (f), and (g) of section 362 apply to a stay under this subsection. (b)A debt, executory contract (other than a qualified financial contract), or unexpired lease of the debtor, or an agreement under which the debtor has issued or is obligated for any debt, may be assumed by a bridge company in a transfer under section 1185 notwithstanding any provision in an agreement or in applicable nonbankruptcy law that— (1)prohibits, restricts, or conditions the assignment of the debt, contract, lease, or agreement; or (2)terminates or modifies, or permits a party other than the debtor to terminate or modify, the debt, contract, lease, or agreement on account of— (A)the assignment of the debt, contract, lease, or agreement; or (B)a change in control of any party to the debt, contract, lease, or agreement. (c) (1)A debt, contract, lease, or agreement of the kind described in subparagraph (A) or (B) of subsection (a)(2) may not be terminated or modified, and any right or obligation under such debt, contract, lease, or agreement may not be terminated or modified, as to the bridge company solely because of a provision in the debt, contract, lease, or agreement or in applicable nonbankruptcy law— (A)of the kind described in subsection (a)(1)(B) as applied to the debtor; (B)that prohibits, restricts, or conditions the assignment of the debt, contract, lease, or agreement; or (C)that terminates or modifies, or permits a party other than the debtor to terminate or modify, the debt, contract, lease or agreement on account of— (i)the assignment of the debt, contract, lease, or agreement; or (ii)a change in control of any party to the debt, contract, lease, or agreement. (2)If there is a default by the debtor under a provision other than the kind described in paragraph (1) in a debt, contract, lease or agreement of the kind described in subparagraph (A) or (B) of subsection (a)(2), the bridge company may assume such debt, contract, lease, or agreement only if the bridge company— (A)shall cure the default; (B)compensates, or provides adequate assurance in connection with a transfer under section 1185 that the bridge company will promptly compensate, a party other than the debtor to the debt, contract, lease, or agreement, for any actual pecuniary loss to the party resulting from the default; and (C)provides adequate assurance in connection with a transfer under section 1185 of future performance under the debt, contract, lease, or agreement, as determined by the court under section 1185(c)(4).

1188.

Treatment of qualified financial contracts and affiliate contracts

(a)Notwithstanding sections 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 362(o), 555, 556, 559, 560, and 561, a petition filed under section 1183 operates as a stay, during the period specified in section 1187(a)(3)(A), applicable to all entities, of the exercise of a contractual right— (1)to cause the modification, liquidation, termination, or acceleration of a qualified financial contract of the debtor or an affiliate; (2)to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with a qualified financial contract of the debtor or an affiliate; or (3)under any security agreement or arrangement or other credit enhancement forming a part of or related to a qualified financial contract of the debtor or an affiliate. (b) (1)During the period specified in section 1187(a)(3)(A), the trustee or the affiliate shall perform all payment and delivery obligations under such qualified financial contract of the debtor or the affiliate, as the case may be, that become due after the commencement of the case. The stay provided under subsection (a) terminates as to a qualified financial contract of the debtor or an affiliate immediately upon the failure of the trustee or the affiliate, as the case may be, to perform any such obligation during such period. (2)Any failure by a counterparty to any qualified financial contract of the debtor or any affiliate to perform any payment or delivery obligation under such qualified financial contract, including during the pendency of the stay provided under subsection (a), shall constitute a breach of such qualified financial contract by the counterparty. (c)A qualified financial contract between an entity and the debtor may not be assigned to or assumed by the bridge company in a transfer under section 1185 unless— (1)all qualified financial contracts between the entity and the debtor are assigned to and assumed by the bridge company in the transfer under section 1185; (2)all claims of the entity against the debtor under any qualified financial contract between the entity and the debtor (other than any claim that, under the terms of the qualified financial contract, is subordinated to the claims of general unsecured creditors) are assigned to and assumed by the bridge company; (3)all claims of the debtor against the entity under any qualified financial contract between the entity and the debtor are assigned to and assumed by the bridge company; and (4)all property securing or any other credit enhancement furnished by the debtor for any qualified financial contract described in paragraph (1) or any claim described in paragraph (2) or (3) under any qualified financial contract between the entity and the debtor is assigned to and assumed by the bridge company. (d)Notwithstanding any provision of a qualified financial contract or of applicable nonbankruptcy law, a qualified financial contract of the debtor that is assumed or assigned in a transfer under section 1185 may not be accelerated, terminated, or modified, after the entry of the order approving a transfer under section 1185, and any right or obligation under the qualified financial contract may not be accelerated, terminated, or modified, after the entry of the order approving a transfer under section 1185 solely because of a condition described in section 1187(c)(1), other than a condition of the kind specified in section 1187(a)(1)(B)(iv)(III) or section 1187(b) that occurs after property of the estate no longer includes a direct beneficial interest or an indirect beneficial interest through the special trustee, in more than 50 percent of the equity securities of the bridge company. (e)Notwithstanding any provision of any agreement or in applicable nonbankruptcy law, an agreement of an affiliate (including an executory contract, an unexpired lease, qualified financial contract, or an agreement under which the affiliate issued or is obligated for debt) and any right or obligation under such agreement may not be terminated or modified, solely because of a condition described in section 1187(c)(1), other than a condition of the kind specified in section 1187(a)(1)(B)(iv)(III) or section 1187(b) that occurs after the bridge company is no longer a direct or indirect beneficial holder of more than 50 percent of the equity securities of the affiliate, at any time after the commencement of the case if— (1)all direct or indirect interests in the affiliate that are property of the estate are transferred under section 1185 to the bridge company within the period specified in subsection (a); (2)the bridge company assumes— (A)any guarantee or other credit enhancement issued by the debtor relating to the agreement of the affiliate; and (B)any right of setoff, netting arrangement, or debt of the debtor that directly arises out of or directly relates to the guarantee or credit enhancement; and (3)any property of the estate that directly serves as collateral for the guarantee or credit enhancement is transferred to the bridge company.

1189.

Licenses, permits, and registrations

(a)Notwithstanding any otherwise applicable nonbankruptcy law, if a request is made under section 1185 for a transfer of property of the estate, any Federal, State, or local license, permit, or registration that the debtor or an affiliate had immediately before the commencement of the case and that is proposed to be transferred under section 1185 may not be terminated or modified at any time after the request solely on account of— (1)the insolvency or financial condition of the debtor at any time before the closing of the case; (2)the commencement of a case under this title concerning the debtor; (3)the appointment of or taking possession by a trustee in a case under this title concerning the debtor or by a custodian before the commencement of the case; or (4)a transfer under section 1185. (b)Notwithstanding any otherwise applicable nonbankruptcy law, any Federal, State, or local license, permit, or registration that the debtor had immediately before the commencement of the case that is included in a transfer under section 1185 shall be valid and all rights and obligations thereunder shall vest in the bridge company.

1190.

Exemption from securities laws

For purposes of section 1145, a security of the bridge company shall be deemed to be a security of a successor to the debtor under a plan if the court approves the disclosure statement for the plan as providing adequate information (as defined in section 1125(a)) about the bridge company and the security.

1191.

Inapplicability of certain avoiding powers

A transfer made or an obligation incurred by the debtor to an affiliate prior to or after the commencement of the case, including any obligation released by the debtor or the estate to or for the benefit of an affiliate, in contemplation of or in connection with a transfer under section 1185 is not avoidable under section 544, 547, 548(a)(1)(B), or 549, or under any similar nonbankruptcy law.

1192.

Consideration of financial stability

The court may consider the effect that any decision in connection with this subchapter may have on financial stability in the United States.