Bankruptcy Liquidation Versus the SIPA Liquidation in Bankruptcy Court
The essential difference between a liquidation under the Bankruptcy Code and one under the SIPA is that under the Bankruptcy Code the trustee is charged with converting securities to cash as quickly as possible and, with the exception of the delivery of customer name securities, making cash distributions to customers of the debtor in satisfaction of their claims. A SIPC trustee, on the other hand, is required to distribute securities to customers to the greatest extent practicable in satisfaction of their claims against the debtor.
There is a fundamental difference in orientation between the two proceedings. There is a statutory grant of authority to a SIPC trustee to purchase securities to satisfy customer net equity claims to specified securities. 15 U.S.C. §78fff-2(d). The trustee is required to return customer name securities to customers of the debtor (15 U.S.C. § 78fff-2(c)(2)), distribute the fund of "customer property" ratably to customers (15 U.S.C. § 78fff-2(b)), and pay, with money from the SIPC fund, remaining customer net equity claims, to the extent provided by the Act (15 U.S.C. §§ 78fff-2(b) and 3(a)). A trustee operating under the Bankruptcy Code lacks similar resources. The Code seeks to protect the filing date value of a customer's securities account by liquidating all non-customer name securities. SIPA seeks to preserve an investor's portfolio as it stood on the filing date. Under SIPA, the customer will receive securities whenever possible.