Trust Indenture Act controls: Overview, definition, and example
What is Trust Indenture Act controls?
Trust Indenture Act controls is a clause found in indentures and related agreements for debt securities. It states that if there is any inconsistency between the agreement and the Trust Indenture Act of 1939 (TIA), the provisions of the TIA will govern. The TIA is a federal law that sets standards for debt offerings, particularly protecting the rights of bondholders by regulating trustees, amendments, and default remedies.
Why is Trust Indenture Act controls important?
This clause ensures that the indenture complies with U.S. securities law and cannot override mandatory protections granted by the TIA. It prevents parties from contracting around key investor safeguards—such as the right to receive payment or object to amendments—and helps avoid enforceability issues. For bondholders, it provides a baseline of protection that cannot be waived, even by agreement.
Understanding Trust Indenture Act controls through an example
A company issues bonds under an indenture that allows certain amendments with approval from a simple majority of holders. However, the TIA requires unanimous consent for any amendment that impairs the right to receive payment. Because the agreement includes a Trust Indenture Act controls clause, the TIA requirement overrides the more permissive contract language, and the amendment cannot proceed without full bondholder approval.
Example of a Trust Indenture Act controls clause
"If any provision of this Indenture limits, qualifies, or conflicts with any provision of the Trust Indenture Act of 1939, as amended, that is required to be included in this Indenture, the applicable provision of the Trust Indenture Act shall control."
Conclusion
The Trust Indenture Act controls clause reinforces compliance with federal law and protects bondholders from terms that conflict with required legal standards. It ensures that core rights—like payment, trustee duties, and amendment protections—cannot be undermined by contract, providing a dependable legal floor in debt transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.