BWM C.S.H.B. 1870 75(R)BILL ANALYSIS FINANCIAL INSTITUTIONS C.S.H.B. 1870 By: Marchant 4-2-97 Committee Report (Substituted) BACKGROUND During the 74th Regular Session the Texas Legislature adopted the Texas Banking Act of 1995 (H.B. 1543). In adopting the Act, Chapters One through Ten of the Banking Code of 1943 were repealed. This left Chapter Eleven of the old Act, which contains regulations that apply to trust companies, orphaned. Following the 74th Regular Session, the House Committee on Financial Institutions was assigned an interim charge by the Speaker of the House, James E. "Pete" Laney, to review the laws governing trust companies for necessary revisions and possible incorporation into the Texas Banking Act. During the interim, the Banking Commissioner, her staff, and the staff of the Financial Institutions Committee worked with trust industry representatives and other interested parties to revise Chapter Eleven. The goal of this project was to modernize the state law with which trust companies must comply and address the needs of the industry in Texas by developing a stand alone Act entitled the Texas Trust Company Act. The Act is intended to grant trust companies the flexibility that is necessary to permit adaptability in the future in response to the continuing evolution of fiduciary activities while not diminishing any safeguards for sound operations of the companies to the protection of their clients, creditors, and shareholders. PURPOSE If enacted, H.B. 1870 would place Texas trust companies under a single free standing Texas Trust Company Act that would provide flexibility, as well as, fair and safe regulation of the industry. RULEMAKING AUTHORITY The Texas Banking Act previously grants rulemaking authority to the Finance Commission applicable to trust companies (Article 342-1102, Sec. 1, Vernon's Texas Civil Statutes). The Texas Trust Company Act (H.B. 1870) grants some of the same rulemaking authority again to the Finance Commission in addition to granting new rulemaking authority. Therefore, it is the committee's opinion that all rulemaking authority granted by H.B. 1870 is listed below: Rulemaking authority is granted to the Finance Commission in SECTION 1, Chapter 1, Sec. 1.003, to accomplish the purposes of this Act, including rules necessary or reasonable to: (1) implement and clarify this Act; (2) preserve or protect the safety and soundness of state trust companies; (3) grant the same rights and privileges to state trust companies with respect to the exercise of fiduciary powers that are or may be granted to a state or national bank that is domiciled in this state and exercising fiduciary powers; (4) provide for the recovery of the cost of maintenance and operation of the department and the cost of enforcing this Act through the imposition and collection of ratable and equitable fees for notices, applications, and examinations; and (5) facilitate the fair hearing and adjudication of matters before the banking commissioner and the finance commission. Rulemaking authority is granted to the Finance Commission in SECTION 1, Chapter 2, Sec. 2.003(b) to: (1)specify the form of the statement of condition and income (of each state trust company), including specified confidential and public information to be in the statement; (2) require public information in the statement to be published at the times and the publications and locations the finance commission determines; (3) require the statement to be filed with the banking commission at the intervals the finance commission determines. Rulemaking authority is granted to the Finance Commission in SECTION 1, Chapter 3, Sec. 3.011(e) to adopt rules: (1) defining other circumstances under which a state trust company may be exempted from a provision of this Act because it does not transact business with the public; (2) specifying the provisions of this Act that are subject to an exemption request; and (3) establishing procedures and requirements for obtaining, maintaining, or revoking an exemption. Rulemaking authority is granted to the Finance Commission in SECTION 1, Chapter 8, Sec. 8.009(e) to adopt rules implementing the method or manner in which a state trust company exercises specific rights and privileges, including rules regarding the exercise of rights and privileges that would be prohibited to state trust companies. The finance commission may not adopt rules unless it finds that: (1) regulated financial institutions described in Subsection (a) of this section that are domiciled in this state possess the rights or privileges to perform activities the rules would permit state trust companies to perform; and (2) the rules contain adequate safeguards and controls, consistent with safety and soundness, to address the concern of the legislature evidenced by the state law the rules would impact. SECTION BY SECTION ANALYSIS SECTION 1. CHAPTER 1. General Provisions 1.001 (Short Title) provides that the Act may be cited as the Texas Trust Company Act. 1.002(a) (Definitions) defines fifty-four terms used throughout the Act. Some chapters or sections contain definitions for certain terms or phrases used exclusively in that Chapter or Section. Some of the most important are "hazardous condition" [ 1.002(a)(22); "insolvent" [ 1.002.(a)(25)]; "restricted capital" [ 1.002(a)40]; "secondary capital" [ 1.002(a) (42); "trust business" [ 1.002(a)(50)]; and "trust deposits" [ 1.002(a)(51). 1.003 (Trust Company Rules) comparable to provisions found in the Texas Banking Act, provides the finance commission with authority to promulgate regulations. CHAPTER 2. Powers and Duties of Texas Department of Banking Subchapter A. Operation of Department Unless otherwise noted, Subchapter A contains provisions comparable to those found in the Texas Banking Act. 2.001 (Interpretative Statements and Opinions) permits the Banking Commissioner to file interpretative statements that contain matters of general policy for the guidance of state trust companies with the Secretary of State. 2.002 (Examination) permits the banking commissioner to examine state trust companies, with the following additions: subsection (d) permits the banking commissioner to examine an affiliate of a state trust company if the affiliate's activities could materially affect its financial condition; and subsection (f) requires the banking commissioner to report the examination results in writing to the officers and directors, managers, or managing participants of the state trust company. 2.003 (Statements of Condition and Income) directs the state trust companies to submit statements of condition and income. 2.004 (Liability Limited) provides an exemption from liability for the banking commissioner, finance commission members, examiners, and other employees of the Department in the performance of official duties except for acts or omissions which are corrupt or malicious. Subchapter B. Confidentiality of Information Comparable to provisions found in the Texas Banking Act, Subchapter B pertains to confidentiality of information. 2.101 (Disclosure by Department Prohibited) provides that information pertaining to the financial condition or business affairs of a state trust company is confidential and may not be disclosed except as expressly provided by the Act or rules adopted by the finance commission. 2.102 (Disclosure To Finance Commission) provides that confidential information may not be disclosed to a member of the finance commission unless pertinent to a hearing or pending finance commission matter. 2.103 (Disclosure To Other Agencies) permits the banking commissioner to share confidential information with other state and federal government agencies and foreign governments if necessary or proper to the enforcement of law. 2.104 (Other Disclosure Prohibited) provides that examination reports in the state trust company's possession remain the confidential property of the Department and may not be disclosed by the company to any person not officially connected to the company. 2.105 (Civil Discovery) provides that discovery of confidential information from the state trust company or from the Department pursuant to subpoena or other legal process must comply with rules adopted by the finance commission that will restrict release to solely information relevant to the legal dispute at issue, and will require that a protective order be issued by a court prior to release of the information. 2.106 (Investigative Information) permits the banking commissioner to refuse release of records in the custody of the Department if release might jeopardize an ongoing investigation of potentially unlawful activities. 2.107 (Employment Information) permits limited disclosure of employment information to a state trust company or to a person providing employment information to a company concerning known or suspected illegalities. 2.108 (Shareholder Information Rights) prohibits shareholders and participants of a state trust company from examining exam reports, books, records, and other confidential information, which are in the company's possession. CHAPTER 3. Powers; Organization and Organization Changes; Capital and Surplus Subchapter A. Organization Provisions; General Provisions Subchapter A contains provisions comparable to those found in the Texas Banking Act, for organization of state trust companies, including issuance of a charter, and general corporate activities. Important provisions include those pertaining to exempt trust companies [ 3.011-3.019] which codify 7 T.A.C. 10.10 and 10.11, the charter application provisions [ 3.003- 3.006] which codify 7 T.A.C. 15.61(a)],and "restricted capital" [ 3.007]. 3.00l (Organization and Powers of State Trust Company) provides express statutory authority to organize a state trust company and permits it to perform any act as a fiduciary that a state bank or national bank may perform in Texas. Subject to 3.007, a state trust company may exercise the powers of a Texas business corporation reasonably necessary to exercise its specific powers under the Texas Trust Company Act. It may make contributions to community funds, charitable, philanthropic or benevolent instrumentalities and under limited circumstances, may deposit trust funds with itself. 3.002 (Articles of Association of State Trust Company)addresses normal corporate functions such as name, period of duration and powers. Additionally, it addresses the issuance of share, including par value and classes of shares, preemptive rights, cumulative voting, organization provisions, and directors. 3.003 (Application for State Trust Company Charter) specifies the information which must be contained in charter application. Comparable to banks, a new requirement has been added for trust companies requiring that public convenience and advantage be promoted by the new charter with consideration of whether a viable market exists within the state that may be served profitably, including proposed organization and capital structure, anticipated volume of business, experience, ability, standing and competence of proposed officers, directors, and shareholders. The application must also confirm that the organizers have acted in good faith. This section codifies some of the requirements of 7 T.A.C. 15.6(a), and 15.61(a). 3.004 (Notice and Investigation of Charter Application) requires the banking commissioner to notify the organizers when the application is complete and to investigate the application and inquire into the identity and character of each proposed director, manager, officer, managing participant, and principal shareholder or participant. Except as provided by Subchapter B, Chapter 2, financial statements of proposed officers, directors, managers or managing participants are confidential. Organizers must publish notice of the application. This section codifies some of the requirements of 7 T.A.C. 15.6(b), and 15.61(a). 3.005 (Hearing and Decision on Charter Application) authorizes the banking commissioner to accept an application protest and determine whether or not a public hearing will be held. The banking commissioner must then enter an order granting or denying the charter and may make the approval subject to conditions. This section codifies some of the requirements of 7 T.A.C. 15.6(c), and 15.61(a). 3.006 (Issuance of Charter) prohibits a state trust company from engaging in the trust business until it receives its charter from the banking commissioner. The banking commissioner may not issue the charter until the required capital has been paid in cash; the company has elected or qualified the initial officers and directors or managers and otherwise complied with all of the requirements of the Texas Trust Company Act. If the company does not commence business within six months of receiving its charter or conditional approval of its charter application, or any extended period set by the banking commissioner, the banking commissioner may revoke the charter or cancel the conditional application approval. 3.007 (Restricted Capital) provides that the banking commissioner may not issue a charter to a state trust company having restricted capital of less than $1 million. The $1 million minimum requirement codifies the requirements of 7 T.A.C. 10.1(c). "Restricted capital," is defined in 1.002(a)(40). This section also allows the banking commissioner to increase the minimum restricted capital requirement after making certain findings with regard to safety and soundness of the institution. Safety and soundness factors to be considered by the banking commissioner include: the nature and type of business conducted; the nature and degree of liquidity in assets held in a corporate capacity; the amount of fiduciary assets under management; the type of discretion undertaken; the competence and experience of management; the extent and adequacy of internal controls; the presence or absence of annual unqualified audits by an independent CPA; the reasonableness of business plans for retaining or acquiring additional restricted capital; and the existence and adequacy of insurance obtained or held by the state trust company for the purpose of protecting its clients, beneficiaries, and grantors. In the exercise of discretion and safety and soundness considerations, the banking commissioner may allow a state trust company to reduce its minimum restricted capital. This provision codifies the requirements of 7 T.A.C. 10.1(e),(g). 3.008 (Application of Laws Relating to General Business Corporations) provides that Texas corporation laws will apply unless inconsistent withe the Texas Trust Company Act. Additionally, a state trust company may not take any action under Texas corporation laws which for another business corporation would require a filing with the Secretary of State without first submitting the filing to the banking commissioner. 3.009 (Banking Commissioner Hearings) authorizes the banking commissioner to convene a hearing on any matter for decision. The hearing may be conducted by a hearing officer. 3.010 (Finance Commission Hearings; Appeals) provides for review by the finance commission of any adverse decision by the banking commissioner if the affected party requests. The appeal may affirmatively be taken directly to the district court in Travis County, Texas, without first seeking review by the finance commission. 3.011 (Exemption) provides for an application process and examination authority for state trust companies requesting exemption from specified provisions of the Texas Trust Company Act. The banking commissioner is authorized to grant an exemption, subject to certain conditions or limitations, if the company does not transact business with the public. An exempt state trust company may not transact business with the public unless the banking commissioner determines, as provided by 3.003, that public convenience and advantage will be promoted. This section codifies the requirements of 7 T.A.C. 10.10, and 15.62(a). 3.012 (Application for Exemption) specifies the information which must be contained in a trust company exemption application and the requirements to maintain exemption status. Restricts changes of control, authorizes the banking commissioner to revoke an exemption upon certain grounds, and specifies the contents of the notification of revocation of exemption. This section codifies the requirements of 7 T.A.C. 10.10(b), and 15.62. 3.013 (Annual Certification) requires exempt state trust companies to annually certify to the banking commissioner that it is maintaining the conditions and limitations of its exemption. The certification must be accepted by the Department. Also, authorizes the banking commissioner to investigate as necessary to verify the certification. This section codifies the requirements of 7 T.A.C. 10.10(c)(1)(B). 3.014 (Limitation on Effect of Exemption) requires exempt state trust companies to comply with the home office provisions of 3.202 and Texas corporate franchise requirements. This section codifies the requirements of 7 T.A.C. 10.10(c)(1)(C), and 15.61(a). 3.015 (Change of Control) specifies that control of an exempt state trust company may not be sold or transferred with exempt status. If control is transferred, the acquiring institution must comply with the new charter requirements ( 3.003-3.005; 4.001) and file a separate application to obtain an exemption. This section codifies the requirements of 7 T.A.C. 10.10(d), and 10.56(a),(c), which eliminates the possibility that a new active trust company (public) can be created upon a change of control of an exempt trust company since exempt status does not transfer with the charter. 3.016 (Grounds for Revocation of Exemption) authorizes the banking commissioner to revoke an exemption upon specified grounds. This section codifies the requirements of 7 T.A.C. 10.11(b). 3.017 (Notice and Effect of Revocation of Exemption) authorizes the banking commissioner to revoke an exemption if it determines that the exempt state trust company has violated any of the requirements of this Subchapter. The revocation is effective unless the company requests a hearing before the effective date, which may not be before the fifth day after a notice of revocation is mailed or delivered. This section codifies the requirements of 7 T.A.C. 10.11(c). 3.018 (Action After Revocation) provides an exempt state trust company five days to comply with the requirements of Sections 3.003(b) and (c). This compliance period may be waived by the banking commissioner if it is determined that the company has been engaging in acts to defraud the public. If compliance is not made, the banking commissioner may institute any lawful action or refer the company to the attorney general for institution of a quo warranto proceeding. This section codifies the requirements of 7 T.A.C. 10.11(d), (e). 3.019 (Prior Exemption) provides that a state trust company exempt under a predecessor statute is considered exempt under the Texas Trust Company Act. 3.020 (Trust Companies Chartered Under Prior Law) Voids pre-May 25, 1987 trust company charters unless presented to the Department before May 26, 1988, for substitution of a charter of if the Department did not issue a new substitution charter before May 26, 1989. This is a transitional section designed to bring trust companies chartered under prior law in conformance with the Texas Trust Company Act. 3.021 (Foreign Corporations Exercising Trust Powers) authorizes a foreign corporation to conduct trust business in Texas through control of a Texas state trust company which is formed or acquired and operated as provided by the Texas Trust Company Act and applicable rules. A foreign corporation or other entity chartered or domiciled in another state as a trust company or depository institution with trust powers may act as a trustee in Texas only as provided in Section 105A, Texas Probate Code. 3.022 (Activities Not Requiring A Charter) enumerates activities which do not constitute engaging in trust business which would require a charter. Subchapter B. Amendment of Articles; Changes in Capital and Surplus Comparable to provisions found in the Texas Banking Act, Subchapter B contains general corporate provisions pertaining to amendment of articles of association, establishing a series of shares or participation shares, and changes in capital and surplus. 3.101 (Amendment or Restatement of State Trust Company Articles of Association) permits a state trust company to amend or restate its articles of association for any lawful purpose. Any amendments must be submitted to the banking commissioner prior to filing with the Secretary of State. 3.102 (Establishing Series of Shares or Participation Shares) permits a state trust company, if allowed by the articles of association, authority to establish series of shares and to determine the preferences, limitations, and relative rights of each series. Any filings to be made with the Secretary of State must first be filed with and approved by the banking commissioner. 3.103 (Change in Restricted Capital) provides that a state trust company may not reduce or increase its restricted capital through dividend, redemption or issuance of shares, without the prior approval of the banking commissioner. Certain increases in restricted capital as enumerated in this Section, unless restricted, do not require the approval of the banking commissioner. Also, prior approval is not required for a decrease in restricted capital caused by losses incurred in excess of undivided profits. 3.104 (Capital Notes or Debentures) with the prior approval of the banking commissioner, a state trust company board may authorize the issuance and sale of its capital notes or debentures which must be subordinate to the claims of depositories and may be subordinate to other claims, including the claims of other creditors or classes of creditors or the shareholders or participation shares of any class or series. However, without the prior written approval of the banking commissioner, interest due or principal payable on outstanding capital notes or debentures may not be paid by a state trust company when it is in financial difficulty or insolvent, as determined by the banking commissioner, or to the extent that payment will create financial difficulty or insolvency. Finally, the amount of any outstanding capital notes or debentures that meet the requirements of this Section and are subordinated to unsecured creditors may be included in equity capital for the purposes of determining financial difficulty or insolvency. 3.105 (Board Designation of Certified Surplus) authorizes a Board to periodically designate and record the amount of certified surplus in its minutes. Except to absorb losses in excess of undivided profits and uncertified surplus, any reductions require prior written banking commissioner approval. This section codifies the requirements of 7 T.A.C. 10.1(a)(3)(A)(ii)(III). Subchapter C. State Trust Company Offices Comparable to provisions found in the Texas Banking Act, Subchapter C describes the various types of offices a state trust company may utilize. 3.201 (Conduct of the Trust Business) provides that a state trust company may engage in trust business at its home office and at other locations permitted by this Subchapter. 3.202 (Home Office) provides that a state trust company must maintain a home office in Texas at which it does business and keeps its corporate books and records. Each officer at the home office is an agent for service of process. The home office location may be changed upon notice to the banking commissioner. The change is effective 31 days after notice. A proposed relocation of the state trust company's home office or another action that would effect an abandonment of the home office may not be made without the prior written approval of the banking commissioner. This section codifies some of the requirements of 7 T.A.C. 10.2, and 15.61. 3.203 (Additional Offices) permits a state trust company to establish additional offices anywhere in Texas with the banking commissioner's prior written approval. Approval will be granted if the banking commissioner has no supervisory or regulatory concerns regarding the proposed additional office. Subchapter D. Merger Authority Comparable to provisions found in the Texas Banking Act, Subchapter D provides specific procedures for mergers of state trust companies. 3.301 (Merger Authority) with the prior written approval of the banking commissioner, a state trust company may merge to the same extent as a business corporation under the Texas Business Corporation Act, subject to provisions of this Subchapter, and applicable rules. 3.302 (Merger Application; Grounds for Approval) specifies the information which must be contained in the merger application and the criteria to be considered by the banking commissioner in determining whether to approve the merger application. 3.303 (Approval of Banking Commissioner) specifies the banking commissioner's responsibilities when it approves a merger application and provides that a merger is effective on the date of approval, unless the merger agreement provides and the banking commissioner consents to a different effective date. 3.304 (Rights of Dissenters to Merger) provides that a shareholder, participant, or participanttransferee may dissent from the merger to the extent allowed by the Texas Business Corporation Act and applicable rules. Subchapter E. Purchase or Sale of Assets Comparable to provisions found in the Texas Banking Act, Subchapter E describes the procedures and responsibilities for the sale or purchase of the assets of another regulated financial institution by a state trust company. 3.401 (Authority to Purchase Assets of Another Trust Company) with the prior written approval of the banking commissioner, a state trust company may purchase all or substantially all of the assets of another regulated financial institution. Also, specifies the information which must be contained in the merger application. 3.402 (Authority to Act as Disbursing Agent) permits the purchasing state trust company to hold the purchase price and any additional funds delivered to it by the selling institution in trust and as agent of the selling institution in disbursing those funds in trust by paying the creditors of the selling institution. 3.403 (Liquidation of Selling Institution) provides that if the selling institution is subsequently closed for liquidation by a state or federal regulatory agency, the purchasing trust company shall pay to the receiver the balance of the funds held by it in trust for the selling institution. 3.404 (Payment to Creditors) permits the purchasing trust company to pay creditors of the selling institution under the terms of an agency contract. 3.405 (Sale of Assets) authorizes the board of a state trust company, with the banking commissioner's approval, to sell all or substantially all of its assets without shareholder or participant approval because of its hazardous condition. The purchasing institution must pay or otherwise discharge all of the obligations and liabilities of the selling institution and the banking commissioner. Subchapter F. State Trust Regulatory System: Exit of State Trust Company 3.501 (Merger, Reorganization, or Conversion of State Trust Company Into National Bank Exercising Fiduciary Powers) authorizes a state trust company to merge, reorganize, or convert into a national bank authorized solely to exercise fiduciary powers. The board, shareholders or participants must approve the proposed action and a required notice of the proposed transaction must published. The banking commissioner must be given written notice before the 31st day preceding the date of the proposed transaction. The banking commissioner must determine the following: all accounts and liabilities of the state trust company are fully discharged, assumed, or otherwise retained by the successor national bank exercising fiduciary powers; any conditions imposed by the banking commissioner for protection of clients and creditors have been met or resolved; and any required filing fees have been paid. CHAPTER 4. Shares and Participation Shares; Shareholders and Participants; Management Subchapter A. Transfer of Ownership Interests In State Trust Company Subchapter A codifies the requirements of 7 T.A.C. 3.61 governing change of control of a state trust company, and, contains comparable provisions to those found in the Texas Banking Act. 4.001 (Acquisition of Control) generally requires a person to obtain the prior written approval of the banking commissioner prior to acquiring control of a state trust company. 4.002 (Application Regarding Acquisition of Control) specifies the information which must be contained in the change of control application. Notice of the application must be published. 4.003 (Hearing and Decision on Acquisition of Control) provides that the banking commissioner must approve the application or set the application for hearing within 60 days after the notice is published. Also, describes the criteria for approval and the procedure for requesting a hearing by the banking commissioner. 4.004 (Appeal From Adverse Decision) provides that an appeal to the district court in Travis County, Texas, is subject to the substantial evidence rule if the change of control application is denied. 4.005 (Objection to Other Transfer) provides that the banking commissioner has the authority to investigate, comment on, or seek to enjoin or set aside a transfer of voting securities that evidence a direct or indirect interest in a state trust company, if the banking commissioner considers the transfer to be against the public interest. 4.006 (Civil Enforcement; Criminal Penalties) authorizes the banking commissioner to seek to enjoin any action which is in violation of this Subchapter. Also, provides that a person who knowingly fails or refuses to file the application required by 4.002 commits a Class A misdemeanor offense. Subchapter B. Board and Officers With the exception of 4.101, Subchapter B contains provisions comparable to those found in the Texas Banking Act, which set forth the requirements for election of management and the election and the duties and other responsibilities of management. 4.101 (Voting Securities Held By Trust Company) restricts voting securities held in a fiduciary capacity by a state trust company unless the following requirements are met: the will or trust specify that the donor or beneficiary may determine the manner in which the voting securities are to be voted and the donor or beneficiary makes the determination; the will or trust expressly provide the manner in which the securities must be voted so that the state trust company as fiduciary has no discretion; and the securities are voted solely by a cofiduciary that is not an affiliate of the state trust company. 4.102 (Bylaws) requires that each state trust company adopt bylaws in accordance with the Texas Business Corporation Act. Limited trust associations in which management is retained by the participants are not required to adopt bylaws if provisions required by law to be contained in the bylaws are contained in the articles of association or the participation agreement. If a limited trust association has adopted bylaws which designate each full liability participant, the limited trust association shall file with the banking commissioner a copy of the bylaws. 4.103 (Board of Directors, Managers, or Managing Participants) describes the board of directors and its responsibilities and adds a disqualification ( 4.103(b)(3)) for a person proposed as a director if that person has violated Sections 113.052 or 113.053(a) of the Texas Probate Code relating to loans of trust funds and purchase or sale of trust property by a trustee, if the violation(s) have not been corrected. Thus, a director that is a party to a breach of trust under these probate sections and who is unwilling or unable to cure the breach, would not be able to serve as director. 4.104 (Required Board Meeting) requires at least one regular meeting each quarter and that all actions be recorded in its minutes. 4.105 (Officers) designates the required officers by function rather than title. 4.106 (Certain Criminal Offenses) provides that the concealment of information or a fact, or removal, destruction, or concealment of a book or record of the state trust company by an officer, director, manager, managing participant, employee, shareholder, or participant ("insider"), constitutes a third degree felony. 4.107 (Transactions with Management and Affiliates) requires prior written approval of the banking commissioner of certain sale or lease transactions involving insiders. Also, requires that loans to an insider be made on substantially the same terms, as those for comparable transactions with noninsiders, that the loans must not involve more than the normal risk of repayment or present other unfavorable features, and that the state trust company must follow credit underwriting procedures that are not less stringent than those applicable to comparable transactions with non-insiders. 4.108 (Fiduciary Responsibility) specifies that the Board of a state trust company is responsible for the proper exercise of fiduciary powers. 4.109 (Recordkeeping) requires that a state trust company keep its fiduciary records separate and distinct from other records of the state trust company. 4.110 (Bonding Requirements) requires that all directors, managers, managing participants, officers, and employees of a state trust company be bonded, with corporate insurance or surety companies, for acts involving dishonesty, fraud, defalcation, forgery, and theft. 4.111 (Reports of Apparent Crime) requires that a state trust company which is the victim of a robbery, a shortage of corporate or fiduciary funds in excess of $5,000, or misapplication of funds by an insider, file a report with the banking commissioner, within 48 hours of discovery. Subchapter C. Special Provisions For Limited Trust Associations Comparable to provisions found in the Texas Banking Act, Subchapter C contains special provisions for limited banking associations. 4.201 (Filing of Notice of Full Liability) requires filing of a copy of the participation agreement with the banking commissioner. 4.202 (Liability of Participants and Managers) generally exempts participants, other than a full liability participant, and managers of a limited trust association, for debts of the limited trust association. 4.203 (Contracting Debts and Obligations) provides that debts and obligations may be contracted for or incurred by a majority of the managers with management authority, a majority of the managing participants, or an authorized officer or other agent. 4.204 (Management of Limited Trust Association) provides that management is generally vested in the participants, except that in certain circumstances, it management will be vested in an elected board of managers. 4.205 (Withdrawal or Reduction of Participant's Contribution to Capital) limits return of a participant's capital contribution to certain situations. 4.206 (Interest in Limited Trust Association; Transferability of Interest) provides that a participant's interest or participant-transferee is their personal estate and may be transferred as provided in the bylaws of the participation agreement. 4.207 (Dissolution) specifies events of dissolution. 4.208 (Allocation of Profits and Losses) provides that, subject to 3.103, distributions (cash or other assets) to participants may be made as provided by the participation agreement. 4.209 (Distributions) provides that profits and losses may be allocated among the participants as provided by the participation agreement. 4.210 (Other Provisions Related to Limited Trust Associations) provides that for purposes of the provisions of the Texas Trust Company Act: a manager/ board of managers, or a participant, if no board of managers exists, are considered to be a director and board of directors; a participant is considered to be a shareholder; a participation share is considered a share of stock; and a distribution is considered a dividend. CHAPTER 5. Investments, Loans, and Deposits Except as otherwise noted, Chapter 5 contains provisions comparable to those found in the Texas Banking Act pertaining generally to investments, loans, and deposits of state trust companies. New and important provisions pertain to restricted capital investments [ 3.007; 5.001; 5.101; 5.104; and 5.201]; secondary capital investments [ 5.101, 5.103; and 5.301]; trust deposits [ 5.401]; and the prudent judgment rule in connection with secondary capital investments. Subchapter F., "Liabilities and Pledge of Assets," mirrors existing law under Chapter XI of the Texas Banking Code. Subchapter A. Acquisition and Ownership of State Trust Company Facilities and Other Real Estate 5.001 (Investment in State Trust Company Facilities) requires the prior written approval of the banking commissioner before a state trust company may not directly or indirectly invest in facilities, furniture, fixture and equipment in excess of 60% of its restricted capital. Further provides specific provisions for computing this limitation. Real estate acquired for future expansion and not improved and occupied within three years of the date of acquisition ceases to be trust company facilities unless approved by the banking commissioner. State trust companies are required to comply with generally accounting principles, consistently applied, in accounting for investments in and depreciation of state trust company facilities, furniture, fixtures and equipment. Subchapter B. State Trust Company Investments 5.101 (Securities) provides that a state trust company may invest its corporate funds in any type or character of equity or investment securities subject to the limitations contained therein. Generally, a state trust company must invest and maintain an amount equal to at least 40% of its restricted capital in investment securities that are readily marketable and can be converted to cash within four business day. Investments in equity and investment securities in any one issuer, obligator, or maker, held by the trust company for its account may not exceed an amount equal to 15% of restricted capital. Without limitation and subject only to the exercise of prudent judgment, a state trust company may invest for its own account in bonds or other general obligations of a state, agency, or political subdivision of a state, the United States, or an agency or instrumentality of the United States (and other enumerated investments). This section codifies some of the requirements of 7 T.A.C. 10.5. Provides that in the exercise of prudent judgment, a state trust company must, at a minimum: exercise care and caution to make and implement investment and management decisions, taking into consideration safety and soundness; pursue an overall investment strategy to enable management to make appropriate present and future decisions; and consider the size, diversification and liquidity of its corporate assets, the general economic conditions, the possible effect of inflation or deflation, the expected tax consequences of the investment decisions or strategies, the role each investment or course of action plays within the investment portfolio, and the expected total return of the portfolio. Provides that a state trust company may invest its secondary capital in any type or character of equity or investment securities subject to the exercise of prudent judgment. 5.102 (Transactions in State Trust Company Shares or Participation Shares) generally provides that without prior written approval of the banking commissioner, a state trust company may not acquire its own shares or participation shares. 5.103 (Subsidiaries) provides that, subject to the exercise of prudent judgment, a state trust company may invest its secondary capital to acquire one or more subsidiaries to conduct any activity that may lawfully be conducted through the formal organization chosen for the subsidiary. Investments in a subsidiary require 30 days notice to the banking commissioner. Trust company subsidiaries are subject to regulation by the banking commissioner. 5.104 (Other Real Estate) provides that except as provided in 5.001, a state trust company may not invest its restricted capital in real estate unless necessary to avoid or minimize a loss on a loan or investment previously made in good faith. Generally, other real estate acquired must be disposed of within statutorily defined periods of time varying with the nature of the property. The banking commissioner may grant one or more extensions of time if it is determined that the state trust company has made a good faith effort to dispose of the property or disposal would be detrimental to the company. Subject to the exercise of prudent judgment, a state trust company may invest its secondary capital in real estate. Subchapter C. Loans 5.201(Lending Limits) provides that loans to one debtor may not exceed 15% of the state trust company's restricted capital. The aggregate of loans to insiders must not exceed 15% of restricted capital. Also, loans to an insider must be on terms and under circumstances, including credit standards, that are substantially the same as those for a non-insider. Officers, directors, managers, managing participants, or employees with the state trust company who approve or participate in the approval of a loan with actual knowledge that it violates this Section are held jointly and severally liable to the state trust company for the lesser of the amount by which the loan exceeded applicable lending limits or the company's actual loss. They remain liable for that amount of the loan and all prior indebtedness of the borrower until the company has been fully repaid. Subchapter C does specifies that it does not confer general banking privileges on state trust companies. 5.202 (Lease Financing Transactions) provides that a state trust company may become the owner an lessor of tangible personal property for lease financing transacting on a net lease basis on the specific request and for the use of a client. Without the written approval of the banking commissioner, a state trust company may not hold the property for more than six months. Rental payments received are considered to be rent and not interest or compensation for use, forbearance or detention of money. However, for the purpose of lending limits, lease transaction is considered a loan. Subchapter D. Other Investment Provisions 5.301. (Other Investment Provisions) provides that without the prior written approval of the banking commissioner, a state trust company may not make any investment of its secondary capital in any investment that incurs or may incur, under regulatory accounting principles, a liability or contingent liability. Also, permits the banking commissioner to require a state trust company to dispose of any secondary capital investment if it is determined that divestiture of the asset is necessary to protect safety and soundness. Unless a state trust company appeals before the effective date of the proposed divestiture order, the order becomes final and nonappealable. Subject to this Section, 5.302, and in the exercise of prudent judgment, a state trust company may invest its secondary capital in any type or character of investment for the purpose of generating income or profit. 5.302 (Engaging in Commerce Prohibited) generally prohibits a state trust company from investing its funds in trade or commerce by buying, selling or otherwise dealing in goods or by owning or operating a business not part of the state trust company business, except as necessary to fulfill a fiduciary obligation to the client. Subchapter E. Trust Deposits 5.401 (Trust Deposits) this new section allows a state trust company to deposit trust funds with itself as an investment if authorized by the settlor or the beneficiary provided it maintains the security for the deposit required by this Section. Security for a deposit under this Section is not required to the extent the deposit is insured by the FDIC. This section does not confer general banking privileges. The deposits are investments made on behalf of clients. Solely the trust company will be able to move funds in and out of the deposit account, and these transactions will generally be made according to the terms of a contract or court order. Subchapter F. Liabilities and Pledge of Assets 5.401 (Borrowering Limit) provides that except with the prior written approval of the banking commissioner, a state trust company may not have outstanding liabilities which exceed an amount equal to five times its restricted capital. 5.402 (Pledge of Assets) provides that, with limited exceptions, a state trust company may not pledge or create a lien on any of its assets. CHAPTER 6. Enforcement Actions Comparable to provisions contained in the Texas Banking Act, Chapter 6 pertains to enforcement actions for state trust companies including "unauthorized activity" as defined in 1.002(a)(52), and contains provisions regarding supervision and conservatorship. Subchapter C, "Unauthorized Activity," also contains comparable provisions to those found in the Texas Insurance Code. Subchapter A. Enforcement Orders; State Trust Company and Management 6.001 (Determination Letter) authorizes the banking commissioner to issue a letter notifying a state trust company that it is in a condition that may warrant an enforcement order unless certain requirements are satisfied. 6.002 (Cease and Desist Order) authorizes the banking commissioner to issue a cease and desist order if certain specified conditions exist. The order is final and nonappealable if it is not appealed before its effective date, which may not be before the 21st day after the date the proposed order is mailed or delivered. 6.003 (Removal or Prohibition Order) authorizes the banking commissioner to remove a present or former officer, director, manager, managing participant, or employee of a state trust company from office or employment in, or prohibit a controlling shareholder or participant or other person participating in the affairs of a state trust company from further participation in the affairs of, a state trust company, state banks, or other entity chartered by the banking commissioner, if certain specified wrongdoing has occurred. 6.004 (Hearing on Proposed Order) provides that a requested hearing on a proposed order must be held not later than the 30th day after the date the first hearing request is received, unless the parties agree to a later hearing date. Written notice of the hearing shall be given. 6.005 (Emergency Orders) authorizes the banking commissioner to issue emergency cease and desist, removal, or prohibition orders if the banking commissioner believes that immediate action is needed to prevent immediate and irreparable harm. Emergency orders are effective immediately on service without prior notice and hearing. A hearing must be requested in writing not later than the 10th day after the date the order is served, or the emergency order is final and nonappealable. A hearing must be held not later than the 20th day after the date that it is requested unless the parties agree to a later hearing date. After the hearing, the banking commissioner may affirm, modify, or set aside in whole or part the emergency order. 6.006 (Copy of Letter or Order in State Trust Company Records) requires that a copy of any order issued by the banking commissioner under this Subchapter be immediately brought to the attention of the board of the state trust company and filed in the board's minutes. Also, requires each director, manager, or managing participant to certify to the banking commissioner in writing that they have read and understand the order. 6.007 (Effect of Final Removal or Prohibition Order) provides that without the prior written approval of the banking commissioner, a person subject to final removal or prohibition order is banned from working for state trust companies or banks under the jurisdiction of the banking commissioner and may exercise voting rights in such an entity . 6.008 (Limitation on Action) establishes a five year limitations period for enforcement actions under this Subchapter. 6.009 (Enforcement of Final Order) provides that if the banking commissioner reasonably believes that a final order has been violated, the banking commissioner may: initiate administrative penalty proceedings; refer the matter to the attorney general for enforcement; or pursue any action the banking commissioner considers appropriate under applicable law. 6.010 (Administrative Penalties) authorizes the banking commissioner to initiate a proceeding for an administrative penalty (not to exceed $500 for each day of the violation) against a state trust company. The hearing may not be held earlier than the 20th day after the date the notice is served. 6.011 (Payment or Appeal of Administrative Penalty) requires a state trust company to pay a penalty under a final order or appeal to the district court of Travis County, Texas. If a state trust company does not pay or appeal, the banking commissioner must refer the matter to the attorney general for enforcement. 6.012 (Confidentiality of Records) provides that copies of the Department's records relating to enforcement actions are confidential, except that final removal and prohibition orders must be published by the banking commissioner, and final cease and desist orders may be published by the banking commissioner if effective enforcement of the order would be enhanced by the release. 6.013 (Collection of Fees) authorizes the banking commissioner to bring a lawsuit to collect unpaid fees owed to the state. Subchapter B. Supervision and Conservatorship 6.101 (Order of Supervision) authorizes the banking commissioner to appoint a supervisor, without prior notice, if a state trust company is in hazardous condition and an order of supervision appears to be necessary and in the best interest of the state trust company and its clients, creditors, shareholders or participants, or the public. 6.102 (Order of Conservatorship) in addition to 4.103 and 6.104, authorizes the banking commissioner to appoint a conservator, without prior notice, if a state trust company is in hazardous condition and immediate and irreparable harm is threatened. 6.103 (Hearing) provides that a state trust company may request in writing a hearing if a state trust company seeks to contest or modify an order issued under 6.101 or 6.102, or demonstrate that it has satisfied all requirements for abatement of the order. 6.104 (Post-hearing Order) permits the banking commissioner, after hearing, to release a state trust company from supervision or conservatorship if the state trust company has been rehabilitated, its hazardous condition has been remedied, irreparable harm is no longer threatened. If the banking commissioner finds, after hearing, that the state trust company is not in compliance with its lawful requirements, the banking commissioner may reappoint the supervisor or conservator, or take other appropriate action authorized by law. 6.105 (Confidentiality of Records) provides that the order and other Department records relating to the order are confidential. The banking commissioner may release an order or information regarding the order if it is determined that effective enforcement of the order would be enhanced. 6.106 (Duties of State Trust Company Under Supervision) limits the state trust company from taking specified actions during the conservatorship without the prior approval of the banking commissioner or supervisor, or as otherwise permitted or restricted by the order. The supervision of the acceptance of new accounts for trust companies under supervision is comparable to the supervision of the lending and investment activities for a bank in a hazardous condition. 6.107 (Powers and Duties of Conservator) authorizes a conservator to take possession of all of the property, records, and affairs of a state trust company. Also, specifies the powers possessed by a conservator. 6.108 (Qualifications of Appointee) provides that the banking commissioner may appoint any person as supervisor or conservator who in the sole judgement of the banking commissioner, qualified to serve. 6.109 (Expenses) provides that the banking commissioner shall determine and approve all reasonable expenses of a supervisor or conservator. The expenses are to be paid by the state trust company. 6.110 (Review of Supervisor or Conservator Decisions) permits a majority of a state trust company's board to request in writing that the banking commissioner review an action taken or proposed by the supervisor or conservator. After investigation, the banking commissioner makes a written ruling. The board may object to the written ruling and obtain a hearing before the banking commissioner. A final order issued after the hearing is appealable to the finance commission. 6.111 (Venue) provides that suits relating to a state trust company in conservatorship be filed in Travis County, Texas, or another jurisdiction if appropriate under law. 6.112 (Duration) provides that a supervisor or conservator will serve as long as necessary to accomplish the purposes of the supervision or conservatorship. 6.113 (Administrative Election of Remedies) authorizes the banking commissioner to take any action under Chapter 7 regardless of the existence of supervision and conservatorship. Subchapter C. Unauthorized Trust Activity: Investigation and Enforcement 6.201 (Investigation of Unauthorized Trust Activity) authorizes the banking commissioner to investigate, initiate disciplinary action, and report to a law enforcement agency or regulatory agency, any unauthorized activity. 6.202 (Unauthorized Use of "Trust" and Similar Words) provides that prior written approval of the banking commissioner is required for a person or company (other than another financial institution) to utilize in its name the word "trust," or any other term that tends to imply the business is holding out to the public as engaged in the business of a fiduciary for hire. Excludes banks, savings and loan associations, savings banks, and credit unions. This section codifies the requirements of 7 T.A.C. 10.4. 6.203 (Subpoena Authority) authorizes the banking commissioner to investigate and compel testimony regarding unauthorized activity with state-wide subpoena power. Witness fees are also authorized. 6.204 (Enforcement of Subpoena) provides that subpoenas may be enforced in Travis County, Texas. 6.205 (Confidentiality of Subpoenaed Records) provides that subpoenaed records which are privileged or confidential remain privileged or confidential unless admitted into evidence at hearing or in court, or lawfully subpoenaed. 6.206 (Evidence) provides that upon certification by the banking commissioner, subpoenaed records and testimony are admissible as evidence in any case. 6.207 (Cease and Desist Order Regarding Unauthorized Trust Activity) authorizes the banking commissioner to issue a proposed cease and desist order regarding unauthorized activity which becomes final unless appealed before the effective date, which shall not be less than 21 days after the date the proposed order is mailed or delivered. A requested hearing must be held within 30 days from the written request, unless the parties agree to a later date. Also, authorizes the banking commissioner to release a final order if it is determined that the effective enforcement of the order will be enhanced by its release or the public interest will be served. 6.208 (Emergency Cease and Desist Order Regarding Unauthorized Trust Activity) authorizes the banking commissioner to issue an emergency cease and desist if it is reasonably believed that a person is engaged in a continuing unauthorized trust activity that is fraudulent or threatens immediate and irreparable public harm. A hearing must be requested in writing within 10 days of receipt of the emergency order. A hearing must be held within 10 days of receipt of the request. The banking commissioner may affirm, modify, or set aside in whole or in part the emergency order. 6.209 (Appeal of Cease and Desist Order Regarding Unauthorized Activity) provides that final cease and desist orders are appealable to the district court of Travis County, Texas. 6.210 (Violation of Final Cease and Desist Order Regarding Unauthorized Trust Activity) authorizes the banking commissioner to initiate administrative penalty proceedings, refer the matter to the attorney general for enforcement, or pursue any other action appropriate under applicable law, if the banking commissioner reasonably believes that a person has violated a final cease and desist order. 6.211 (Penalty Order for Unauthorized Activity) specifies procedures for hearings to seek an administrative penalty for violation of a final cease and desist order. Enumerates factors to be considered by the banking commissioner in determining the amount of penalty and whether to impose restitution. 6.212 (Payment and Appeal of Penalty Order) specifies the applicable time frames for a person affected by a penalty order to pay the penalty and/or file a petition for judicial review of the penalty order. 6.213 (Judicial Review of Penalty Order) specifies the procedures for a person seeking judicial review of a penalty order. 6.214 (Deposit to General Revenue Fund) provides that a penalty collected under this Subchapter must be deposited in the general revenue fund. CHAPTER 7. Dissolution and Receivership Subchapter A. General Provisions Subchapter A contains comparable provisions to those found in the Texas Banking Act and the Texas Insurance Code, relating to the exclusive nature of the banking commissioner to liquidate a state trust company, the role of the FDIC in liquidations, and the succession of trust powers by operation of law. 7.001 (Definition) defines "administrative expense" as used in this Chapter. 7.002 (Remedies Exclusive) provides that the banking commissioner has the exclusive right to seek the closing of a state trust company, or appointment of a receiver, supervisor, conservator, or liquidator. 7.003 (Appointment of Independent Receiver) permits the banking commissioner to request a court in which a liquidation proceeding is pending, to appoint an independent receiver. 7.004 (Federal Deposit Insurance Corporation as Liquidator) authorizes the banking commissioner, without court action, to tender a state trust company that has been closed for liquidation to the FDIC. The FDIC may act as receiver under applicable federal law. 7.005 (Succession of Trust Powers) provides for the automatic transfer of fiduciary rights, duties, and obligations to a successor institution. Subchapter B. Voluntary Dissolution Subchapter B contains provisions comparable to found in the Texas Banking Act and the Texas Insurance Code, which describe the procedures for a voluntary liquidation of a state trust company. 7.101 (Approvals Required for Voluntary Dissolution) requires banking commissioner approval and corporate action by the board of directors and shareholders in accordance with the Texas Business Corporation Act for a state trust company to initiate voluntary dissolution and surrender its charter. 7.102 (Notice of Voluntary Dissolution) requires that a notice of voluntary dissolution be published by a state trust company after its has submitted required documentation and obtained the approval of the banking commissioner. Also, requires the dissolving state trust company to give notice to its known clients, depositors, creditors, and bailors. 7.103 (Safe Deposits and Other Bailments) provides a mechanism for the disposition of unclaimed personal property that will ultimately be transferred to the comptroller as unclaimed property. 7.104 (Fiduciary Activities) provides for the termination of all fiduciary accounts with appropriate notice to the trustor and beneficiaries, and maintenance of one office where fiduciary administration will continue until disposition is complete. 7.105 (Final Liquidation) requires a liquidating state trust company to file with the banking commissioner a list containing the names of each person owning unclaimed cash or property. Also, requires the state trust company to pay any unclaimed funds to the comptroller. After the banking commissioner has reviewed the list and reconciled the unclaimed cash and property with the amounts transferred to the comptroller, the banking commissioner will allow the state trust company to distribute the company's remaining assets, if any, to its shareholders, participants, or participant-transferees. After the state trust company submits required documentation, the banking commissioner will issue a certificate canceling the charter. 7.106 (Administrative Authority; Election of Remedies) subjects all liquidating banks to the continued regulation and examination of the Department until the voluntary liquidation is complete. Subchapter C. Involuntary Dissolution and Liquidation Comparable to provisions contained in the Texas Banking Act and the Texas Insurance Code, Subchapter C provides steps for involuntary dissolution and liquidation of a state trust company. 7.201 (Action to Close State Trust Company) authorizes the banking commissioner to close an liquidate a state trust company if the company based on insolvency and if in the best interests of clients and creditors. 7.202 (Involuntary Closing) authorizes the banking commissioner to tender the state trust company to the FDIC as provided by Section 7.003 or initiate a receivership proceeding in a district court in the county where the company's home office is located. 7.203 (Nature and Duration of Receivership) permits the banking commissioner to act as receiver without bond when closing a state trust company and limits the liability of the receiver and the employees and agents while acting in an official capacity. The receiver has all necessary authority to undertake any act required for the proper dissolution and liquidation of the state trust company. Also, allows for the liquidation to continue for as long as necessary for an orderly liquidation to be completed. 7.204 (Contest of Liquidation) allows a state trust company, acting through a majority of its directors, managers, or managing participants, to intervene and challenge the banking commissioner's closing and attempt to enjoin liquidation of its assets. The intervention must be filed not later than the second day after the closing. 7.205 (Notice of State Trust Company Closing) requires the receiver to publish notice of the closing and liquidation and to provide procedures for clients, creditors, and bailors to file claims. Thereafter, the receiver must mail individual notices. 7.206 (Inventory) requires the receiver to prepare a comprehensive inventory of the state trust company's assets for filing with the court. 7.207 (Title in Receiver) transfers title to all property of the state trust company to the banking commissioner as of the date the company is closed and also provides that a lien filed or arising after the date of the closing will be inferior to the claim by the company. 7.208 (Rights Fixed) generally fixes the rights and liabilities of everyone as of the date of closing. 7.209 (Depositories) allows the receiver to deposit money of the liquidating estate into the Texas Treasury Safekeeping Trust Company and in any federally insured depository institution in Texas. Any funds on deposit at a financial institution in excess of deposit insurance must be secured. 7.210 (Pending Lawsuits) stays all pending lawsuits against the state trust company being liquidated. Also, provides that the receiver is not required to plead in any of the existing lawsuits until one year after the date of closing. 7.211 (New Lawsuits) gives the district court in which the receivership is filed exclusive jurisdiction over any actions which occur after the date of closing. Any lawsuit that may be filed against the receiver must be filed in Travis County, Texas. 7.212 (Records with Third Parties) requires all parties connected with the closed trust company to turn over all books and records of the company to the receiver. 7.213 (Injunction in Aid of Liquidation) authorizes the receiver to obtain an injunction or other order required to prevent waste or wrongful disposition of assets of the closed trust company or wrongful interference with the receiver. 7.214 (Subpoena) gives the receiver statewide subpoena power for obtaining information and documents needed in the receivership. 7.215 (Executory Contracts; Oral Agreements) authorizes the receiver to terminate oral and executory contracts and any claim against the closed state trust company that is not in writing is not valid against the receiver. These provisions enact the common law doctrine of equitable estoppel and duplicate similar provisions in federal banking law. 7.216 (Preferences) makes any transfer or lien made or created within four months prior to the closing of the state trust company voidable by the receiver, and makes the parties who cause the transfer or lien liable for the property or benefit received. 7.217 (Other Powers of the Receiver; Administrative Expenses) authorizes the receiver to employ agents, including professionals, to assist in the performance of its duties. 7.218 (Disposal of Property; Settling Claims) authorizes the receiver, with court approval, to sell property, borrow money, compromise claims, and enter into contracts necessary or proper to manage, conserve, or liquidate the company's assets. 7.219 (Discretion of the Court) requires notice to the receiver prior to a court entering an order. 7.220 (Filing Reports; Expenses) requires the receiver to file quarterly status reports with the court. 7.221 (Court-Ordered Audit) allows the district court to order an audit of the books and records of the receivership at the expense of the receiver. 7.222 (Safe Deposits and Other Bailments) describes the process for disposing of property from the closed state trust company not claimed by any rightful owner. 7.223 (Fiduciary Activities) prescribes the action terminating all fiduciary positions of the close state trust company. 7.224 (Disposition and Maintenance of Records) provides the process for disposition of the books and records during and after the receivership. 7.225 (Records Admitted) requires that all books, papers and records of the closed state trust company must be receivable in evidence in any court if found among the effects of the closed company, whether or not they are originals. 7.226 (Resumption of Business) requires the written approval of the banking commissioner before a closed state trust company may reopen unless a court orders otherwise. 7.227 (After-Discovered Assets) describes the procedures for disposition of any assets discovered after the receivership is closed and includes provisions for actions against any person that intentionally or fraudulently concealed the assets. Subchapter D. Claims Against Receivership Estate Comparable to the provisions contained in the Texas Banking Act, the Texas Insurance Code, and federal bankruptcy law, Subchapter D relates to the processing of claims against the closed state trust company and the resolution by the receiver. 7.301 (Filing Claims) and 7.302 (Proof of Claim) describe procedures, including dates, for filing claims against the receivership estate. 7.303 (Judgment as Proof of Claim) requires special proof for a judgment entered against the state trust company prior to the closing of the company to get a higher priority for payment than an unsecured creditor. Judgments taken after the closing of the bank will not be evidence of the claim, and proof will be required as if the judgment was never entered. Judgments acquired prior to the closing of the company that were obtained by default or collusion will not be conclusive evidence of the claim. 7.304 (Secured Claims) allows the secured claimant to take the security for the claim and have the deficiency balance entered as an unsecured claim, subject to the value of the security being determined under supervision of the court. 7.305 (Unliquidated or Undetermined Claims) requires an unliquidated claim to be liquidated prior to the time specified and prior to the closing of the receivership, in which event the claim will share in any distributions ratably with those of the same class. 7.306 (Set-Off) provides procedures for set-off for mutual claims of the claimant and the closed state trust company, but if the obligation of the company to the claimant will become due at a date in the future, the claimant must pay the obligation to the bank and the receiver will repay the claim when it becomes due. 7.307(Action on Claims) allows the receiver six months to accept or reject the claims, at which time the receiver will make a schedule of the claims available to each claimant. 7.308 (Objection to Approved Claim) provides for objection to any claim by anyone prior to a date set by the receiver in the notice to the claimants. 7.309 (Appeal of Rejected Claim) requires action on a rejected claim to be filed within three months after notice of rejection. An appeal of a rejected claim is a de novo action in the receivership court. 7.310 (Payment of Claims) allows the receiver to make distributions from time to time provided a reserve is set up to cover rejected claims on appeal, unliquidated claims with time left to determine, and non-claiming depositors and creditors. 7.311 (Priority of Claims Against Insured State Trust Company) establishes a priority for claims against an insured state trust company to be the same as in liquidation or purchase and assumption for a national bank. 7.312 (Priority of Claims Against Uninsured State Trust Company) describes the priority for claims against an uninsured state trust company to be, in order of priority, administrative expenses, secured creditors to the extent of the value of the collateral, beneficiaries of commingled fiduciary funds, general creditors including taxes, and the claims of capital debenture holders and the shareholders. 7.313 (Excess Assets) provides that any excess assets will be turned over to the control of the shareholders, who must appoint an agent to take over the affairs of the state trust company. 7.314 (Unclaimed Funds and Property) requires that any unclaimed property be transferred to the comptroller. CHAPTER 8. General Provisions Chapter 8 contains provisions comparable to those found in the Texas Banking Act, pertaining to state trust companies in general. An important and new provision is 8.009 ("Parity"). 8.001 (Liabilities, Defenses, and Indemnification of Corporate Officials) adopts the provisions of the Texas Business Corporation Act regarding liability, defenses, and indemnification of a director, officer, agent or employee of state trust companies. 8.002 (Attachment, Injunction, or Execution) provides that generally, a state trust company is not required to post security for a judgment to prevent execution while the judgment is being appealed. National banks have a similar provision in 12 U.S.C. 91. 8.003 (Slander or Libel of a State Trust Company) provides that slander or libel of a state trust company is a state jail felony offense. 8.004 (Authority to Act as Notary Public) authorizes certain officers of a state trust company to acknowledge signatures on a trust document regardless of employment by the company or ownership of company shares. 8.005 (Exemption from Securities Law) exempts state trust company employees in certain instances from the registration requirements of securities laws when selling company shares issued by the employer. 8.006 (Succession of Trust Powers) provides for automatic transfer of fiduciary right, duties, and obligations to a successor institution. 8.007 (Discovery of Client Records) provides that civil discovery of a client record is governed by 30.007, Civil Practice and Remedies Code. 8.008 (Compliance Review Committee) authorizes the formation of compliance review committees with state trust companies. Also, provides that the work product of a compliance review committee enjoys a limited privilege from forced production in litigation. 8.009 (Parity) this new section implements parity between state trust companies, state banks, and national banks. Procedures are described for state trust companies to notify the banking commissioner if the state trust company intends to conduct any activity permitted for a state or national bank that is otherwise denied to a state trust company. Appropriate hearing and appeal provisions are included for persons affected by an adverse decision. The finance commission is expressly authorized to adopt rules permitting and regulating the activity. SECTIONS 2-8. CONFORMING AMENDMENTS These Sections make conforming amendments to other statutes that cross-reference Chapter XI of the Texas Banking Code of 1943 and applicable provisions of the Texas Banking Act to change the reference to the Texas Trust Company Act. SECTION 9. REPEALER This Section repeals Chapter XI of the Texas Banking Code of 1943. SECTION 10. SAVINGS CLAUSE This provision protects the validity of action taken under prior law before the effective date of the Texas Trust Company Act. SECTION 11. EXISTING TRUST COMPANIES This provision is designed to bring trust companies chartered under prior law into conformance with the Texas Trust Company Act. SECTION 12. CRIMINAL LAW TRANSITION Standard provision for bills that change criminal law, this provision saves former criminal law for acts committed prior to the effective date and applies new or changed criminal law only to acts for which all elements of the crime occurred after the effective date of the Texas Trust Company Act. SECTION 13. TRANSITION FOR CHANGE OF CONTROL APPLICATIONS This provision provides that a controlling principal shareholder or participant is not required to file a change of control application under new 4.002 until the person acquires one or more additional shares of the state trust company after the effective date of the Texas Trust Company Act. SECTION 14. TRANSITION FOR ADMINISTRATIVE PROCEEDINGS Standard provision for bills that change administrative procedures, this provision saves existing law to apply to existing administrative proceedings. SECTION 15. CONFLICTS WITH OTHER ENACTMENTS This provision was added by the Texas Legislative Council to resolve conflicts with other enactments of the 75th Legislature which amend applicable laws relating to state trust companies. SECTION 16. EFFECTIVE DATE: September 1, 1997. SECTION 17. EMERGENCY CLAUSE COMPARISON OF ORIGINAL TO SUBSTITUTE The Committee Substitute to H.B. 1870 expands the activities not requiring a state charter found in SECTION 1, Chapter 3, Sec. 3.022 of the Texas Trust Company Act to include companies performing escrow or settlement services, and companies acting as a qualified intermediary in a tax deferred exchange. Furthermore, the Substitute makes perfecting changes to language found in SECTION 13, and corrects a citation in SECTION 1, Chapter 5, Sec. 5.502.