What Is the Trust Indenture Act?

The Trust Indenture Act establishes a necessity for regulation (Caplin v.

Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)), (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)), addressing problems such as indenture trustees previously writing exculpatory provisions into indentures to immunize themselves from liability for deliberate or negligent misconduct (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)). The regulation provided by the Act takes many forms (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)), (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)).

The Act applies in the following circumstances:

• Whenever securities covered by the Trust Indenture Act are also covered by the registration provisions of the Securities Act of 1933, certain information regarding the indenture trustee and the terms of the indenture must be included in the registration statement (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)).
• When securities are not registered under the Securities Act of 1933 but are covered by the Trust Indenture Act, the indenture must be qualified by the SEC before it is legal to sell the securities (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)).

The duties and responsibilities of a trustee are enumerated by law (Caplin v.

Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)),. Prior to a default (as defined in the indenture), the qualified indenture is automatically deemed to provide that the indenture trustee is not liable except for performing duties specifically set out in the indenture. Prior to default, the trustee may conclusively rely on certificates or opinions conforming to the indenture's requirements in the absence of bad faith, but the trustee must examine furnished evidence to determine whether it conforms to the indenture requirements.

In the case of a default, the indenture trustee must exercise the rights and powers vested in it by the indenture, and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in conducting their own affairs. Furthermore, the statute does not permit an indenture trustee to exculpate itself from liability for noncompliance with the indenture (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)), and the Act gives no immunity in cases of willful misconduct or gross negligence (Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972)).