I have an account with a brokerage firm that is going under, but my broker said that the firm was proceeding under SIPA liquidation and not a bankruptcy. What is an SIPA liquidation, and how is it different from a straight up bankruptcy?
In many regards a SIPA liquidation and a Chapter 7 liquidation are similar. Under 15USC §78fff(a) a SIPA liquidation is designed to i) deliver customer name securities to or on
behalf of customers; ii) to distribute customer property and otherwise satisfy net equity claims of customers; iii) to sell or transfer offices and other productive units of the debtor's business; iv) to enforce the rights of subrogation; and v) to liquidate the business as promptly as possible. In most other respects, the liquidation is to proceed as a Chapter 7 liquidation. Non-customer claims (ie, not an account holder but a creditor) are treated the same as under an asset sale and there is a mandatory creditor meeting which the trustee handles.
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In many regards a SIPA liquidation and a Chapter 7 liquidation are similar. Under 15USC §78fff(a) a SIPA liquidation is designed to i) deliver customer name securities to or on
behalf of customers; ii) to distribute customer property and otherwise satisfy net equity claims of customers; iii) to sell or transfer offices and other productive units of the debtor's business; iv) to enforce the rights of subrogation; and v) to liquidate the business as promptly as possible. In most other respects, the liquidation is to proceed as a Chapter 7 liquidation. Non-customer claims (ie, not an account holder but a creditor) are treated the same as under an asset sale and there is a mandatory creditor meeting which the trustee handles.
