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Copyright (c) 1999 University of Miami Business Law Review 
University of Miami Business Law Review

THE INDENTURE TRUSTEE: DOES IT REALLY PROTECT BONDHOLDERS?

Winter, 1999

8 U. Miami Bus. L. Rev. 47

Author

Efrat Lev, Adv.*

Excerpt



I. Introduction



The Trust Indenture Act of 1939 (hereinafter "TIA" or "the Act") 1 is one of the most overlooked enactments in the area of securities law. Jurisprudence involving the Act is scarce, and even before the Act was passed the corporate trust indenture did not get much attention from either courts or commentators. In 1928 Louis Posner wrote, "[I]t is noteworthy that so little [was] written upon in the 50 years during which this field of law has been developing. Indeed, the comparatively few cases, which deal with the subject, leave many of its problems altogether untouched." 2 Not only courts but also legal scholars have paid relatively little attention to the TIA. Furthermore, those who are involved in the business of securities and bonds issuance are commonly unaware of its existence. Even when aware, bondholders seldom appreciate its significance. This article does not proclaim these investors wrong because the current structure of the TIA, and the character of its main creation - the indenture trustee - support such an attitude. Designed to protect investors, the TIA is seldom capable of effectively doing so, and therefore it is thought of as a technical, burdensome and even archaic piece of legislation. But it is questionable whether investors and society as a whole can really afford to ignore a mechanism that could protect investments that lubricate the economy.



One of the most popular ways of borrowing money from the public is to issue debt securities, commonly referred to as bonds. ...
 
 
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