(a)The trustee shall distribute customer property ratably to customers on the basis and to the extent of such customers’ allowed net equity claims and in priority to all other claims, except claims of the kind specified in section
507(a)(2) of this title that are attributable to the administration of such customer property.
(1)The trustee shall distribute customer property in excess of that distributed under subsection (a) of this section in accordance with section
726 of this title.
(2)Except as provided in section
510 of this title, if a customer is not paid the full amount of such customer’s allowed net equity claim from customer property, the unpaid portion of such claim is a claim entitled to distribution under section
726 of this title.
(c)Any cash or security remaining after the liquidation of a security interest created under a security agreement made by the debtor, excluding property excluded under section
741(4)(B) of this title, shall be apportioned between the general estate and customer property in the same proportion as the general estate of the debtor and customer property were subject to such security interest.
752(a) requires the trustee to distribute customer property to customers based on the amount of their net equity claims. Customer property is to be distributed in priority to all claims except expenses of administration entitled to priority under § 507(1). It is anticipated that the court will apportion such administrative claims on an equitable basis between the general estate and the customer property of the debtor.
Subsection (b)(1) indicates that in the event customer property exceeds customers net equity claims and administrative expenses, the excess pours over into the general estate. This event would occur if the value of securities increased dramatically after the order for relief but before liquidation by the trustee. Subsection (b)(2) indicates that the unpaid portion of a customer’s net equity claim is entitled to share in the general estate as an unsecured claim unless subordinated by the court under proposed 11 U.S.C. 501. A net equity claim of a customer that is subordinated under section
747 is entitled to share in distribution under section
726(a)(2) unless subordinated under section
510 independently of the subordination under section
Subsection (c) provides for apportionment between customer property and the general estate of any equity of the debtor in property remaining after a secured creditor liquidates a security interest. This might occur if a stockbroker hypothecates securities of his own and of his customers if the value of the hypothecated securities exceeds the debt owed to the secured party. The apportionment is to be made according to the ratio of customer property and general property of the debtor that comprised the collateral. The subsection refers to cash and securities of customers to include any customer property unlawfully converted by the stockbroker in the course of such a transaction. The apportionment is made subject to section
741(4)(B) to insure that property in a customer’s account that is owed to the stockbroker will not be considered customer property. This recognizes the right of the stockbroker to withdraw money that has been erroneously placed in a customer’s account or that is otherwise owing to the stockbroker.
2005—Subsec. (a). Pub. L. 109–8substituted “507(a)(2)” for “507(a)(1)”.
1984—Subsec. (a). Pub. L. 98–353, § 484(a), substituted “customers’ allowed” for “customers allowed”, “except claims of the kind” for “except claims”, and “such customer property” for “customer property”.
1982—Subsec. (c). Pub. L. 97–222substituted “Any cash or security remaining after the liquidation of a security interest created under a security agreement made by the debtor, excluding property excluded under section
741(4)(B) of this title, shall be apportioned between the general estate and customer property in the same proportion as the general estate of the debtor and customer property were subject to such security interest” for “Subject to section
741(4)(B) of this title, any cash or security remaining after the liquidation of a security interest created under a security agreement made by the debtor shall be apportioned between the general estate and customer property in the proportion that the general property of the debtor and the cash or securities of customers were subject to such security interest”.
Effective Date of 2005 Amendment
Amendment by Pub. L. 109–8effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 ofPub. L. 109–8, set out as a note under section
101 of this title.
Effective Date of 1984 Amendment
Amendment by Pub. L. 98–353effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) ofPub. L. 98–353, set out as a note under section
101 of this title.
The table below lists the classification updates, since Jan. 3, 2012, for this section. Updates to a broader range of sections may be found at the update page for containing chapter, title, etc.
The most recent Classification Table update that we have noticed was Tuesday, August 13, 2013
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