edness aggregates, over $3,000,000 and in 5 instances in extended $25,000,000. The cletribution of cases by amount of mittemess is shown in the following table

Distribution by amount of incitisual indebtedness of cave shoe Omegor I sni Section 77B in vesch tre Commission was a party to the proneum 1.pe—Fressi year 1993

• Does not include one company who indebtedness was not ascertained.

STATISTICS ON REORGANIZATIONS UNDER CHAPTER X

In order to determine in which cases its participation would, in the light of the public interest involved, be desirable and practicable, and in order that it might be in a position to respond to the requests of judges seeking its advice and assistance in connection with specific cases, the Commission has endeavored to keep informed as to the nature of all pending cases. Accordingly, the Commission has investigated or examined during the fiscal year a total of 1,104 reorganization cases, including the cases in which it became a party. Of this number, 527 were proceedings commenced under Section 77B prior to enactment of the Chandler Act, and the remaining 577 were instituted under the provisions of Chapter X of the amended Act.

As an aid to the Commission in the performance of its duties under the Act, it was provided in Section 265a of Chapter X that the Clerks of the various Federal District Courts shall transmit to the Commission copies of all petitions for reorganization filed under that Chapter, as well as copies of various other specified documents filed in the proceedings. Thus, the Commission possesses files or records of the more important papers in all Chapter X cases and is in a position to make available to many users information otherwise practically inaccessible › them.

With a view to dissemination of this information, the Commission has inaugurated a series of statistical surveys presenting data on the total number of proceedings under Chapter X and the aggregate assets and indebtedness of the companies involved, classified according to industry, location of principal assets, location of principal place of business, Federal judicial district in which proceedings were instituted, amount of individual indebtedness, and type of petition filed. The first of these statistical analyses, covering the period from September 22, 1938, to March 31, 1939, inclusive, was released on May 8, 1939. A statistical analysis in similar form covering the period from June 22, 1938 to June 30, 1939, inclusive, is contained in Appendix IX of this report.

THE COMMISSION AS A PARTY TO PROCEEDINGS

In general, it may be said that the Commission's activities in reorganization proceedings in which it participates may be as extensive as the issues arising in the proceedings and as varied in their scope. As a party in interest, the Commission is represented at all important hearings in the proceedings. It participates in the discussions on all major issues and on appropriate occasions files legal or factual memoranda in support of its views. In addition, its views with respect to the fairness and feasibility of reorganization plans are fully discussed with all interested and proper parties, and proposals as to plans are fully examined in connection with the Commission's views. In many cases this has led to extensive amendment and improvement in such proposals in advance of the hearings thereon before the court. The range of matters with which the Commission has been concerned is outlined in the following paragraphs.

The Commission has encountered a number of instances of violation of, and noncompliance with, the procedural provisions of Chapter X. In many cases where such situations came to the Commission's attention, a conference with the parties was sufficient to dispose of the matter. In other cases, it was necessary to file a formal motion

in court.

Insuring Adequate Notice of Hearings to Security Holders.

Among the more important of such violations of the Act were those connected with the provisions for notice which must be given of the various hearings required by the statute. Occasionally, for example, the Commission has advised the parties of their failure to give notice to the various parties entitled thereto, or of the inadequacy of the notice even when given, as relating to the hearings on the question of continuance in possession of the debtor or the retention in office of the trustee. The Commission has similarly objected to failure to give notice of the statutory hearings for the approval of a plan. In a

number of instances applications for interim allowances to the trustees and their counsel were made without the requisite hearing on notice to all creditors, security holders, and parties. In all of these instances it was possible to accomplish a correction of the violations without undertaking any formal court action. Many other examples of procedural noncompliance with the statute could be adduced as to which the Commission has taken remedial action. It is to be emphasized that these matters, though procedural in nature, are of significance to security holders in safeguarding their rights to be heard on all matters arising in reorganization proceedings under the statute. Securing Compliance With Provisions Regarding Trustees.

A most important phase of the Commission's activity in discerning and correcting noncompliance with the Act dealt with the appointment of independent trustees. As an essential element in the proper conduct of reorganizations, the statute prescribes certain standards of disinterestedness which must be met by trustees appointed under Chapter X. Wherever there was any doubt as to the qualifications of the trustees, the Commission undertook thoroughgoing examinations into the facts. In three cases, for example, sufficient evidence of conflicting interests was developed to warrant an appearance in court for the purpose of urging the removal of trustees. In one of these cases, where it appeared that the trustee had been in charge of the debtor's operations at the time of his appointment, the trustee resigned after the Commission filed its motion and before testimony was to be taken at the court hearing. In the second of these cases, the court removed the trustee after hearing. In the third case, the Commission was of the opinion that both the trustee and his attorney were disqualified under the statute, but the court overruled its objection and continued them in office.

In a few cases, independent trustees were not appointed although the indebtedness of each of the several debtors was in excess of $250,000, the point above which the statute makes their appointment mandatory. However, in all such instances, the omission was promptly cured when attention was directed to the violation. In other cases questions arose concerning the powers of the disinterested trustee as distinguished from those of the interested trustee. Under the statute the court can, in unusual cases, designate as an additional co-trustee an officer, director, or employee of the debtor, but only for the purpose of assisting in the operation of the business. Accordingly, the Commission objected to an order directing both the disinterested trustee and the co-trustee to prepare and file a plan. The Commission likewise objected to an order depriving the disinterested trustee of the power to participate in the operation of the business and confining his functions to the formulation and submission of the plan.

In both instances, the Commission's views were approved and the orders amended.

Securing Compliance With Provisions Regarding Protective Committees and Indenture Trustees.

Another general phase of the Commission's efforts to remedy noncompliance with the provisions of Chapter X related to the activities of protective committees and indenture trustees. The Commission has constantly been alert to secure compliance with the provisions of the statute which require disclosure by committees and indenture trustees of relevant information concerning their appointment, affiliations, and security holdings. Considerable attention also has been given to the controversial question whether formal intervention should be granted to committees and indenture trustees in proceedings under Chapter X. The position advanced by the Commission in the courts has been that, since the new statute affords committees and indenture trustees an unqualified right to be heard, such intervention is unnecessary as a general rule. In only one of the many cases dealing with the question was this view rejected.1

In connection with the activities of protective committees, the Commission was also concerned with the problem of solicitation of the assents of security holders to plans of reorganization prior to approval of such plans by the courts. The provisions of Chapter X were designed to assure to creditors and stockholders the information essential to the exercise of an informed judgment concerning the plan before their vote thereon is exercised, and also to remove from the courts the pressure which customarily attended "support" of plans that were frequently neither fair and equitable, nor feasible. Consistently with the purpose of these provisions, the Commission in a number of cases objected to such solicitations prior to the court's consideration and approval of the plan under consideration.

PLANS OF REORGANIZATION UNDER CHAPTER X

Many of the more complex problems which confronted the Commission as a party in reorganization cases were concerned with the failure of proposed reorganization plans to conform with the standards of fairness and feasibility required by Chapter X. As a preliminary to consideration of all plans of reorganization, it was necessary to assemble the essential information bearing on the physical and financial condition of the company, the causes of its financial collapse, the quality of its management, its past operating performance and future prospects, and the reasonable value of its properties. Information on The numerous cases in which this view was upheld include The Philadelphia and Reading Coal and Iron Co. case which was appealed to the Circuit Court of Appeals for the Third Circuit. The opinion of the

appellate court in that case is summarized infra, pp. 20-21.

these matters was obtained through voluntary cooperation on the part of the trustees and the parties; through examination by the Commission's accountants of the books and records of the companies involved; and through the examination of witnesses in court. This information was complemented by the independent research of the Commission's analytical staff into general economic factors affecting the particular company and competitive conditions in the particular industry. Feasibility of Plans.

Although it is obviously difficult to design a pattern of feasibility into which all cases will fall, a number of matters of concern to the Commission in this category may be summarized. Thus, the Commission found it necessary in a number of cases to direct attention to the inadequacy of proposed working capital; to object to proposed fixed charges which were either in excess of or were not sufficiently covered by reasonably anticipated earnings; to object to proposed funded debt or capital structures bearing no reasonable relationship to property values; and, generally speaking, to point out the conditions essential to a sound financial basis from which to look forward to successful operating results. As a typical instance of the latter, the Commission was, in one case, concerned with a plan which provided for the issuance of large blocks of cumulative income bonds, the charges on which would have been in excess of the earning power of the company, even before making allowance for necessarily substantial depreciation charges. It appeared likely that accumulations of interest would continually accrue and increase the debt of the company; by the same token, there seemed little likelihood of any considerable retirement of the bonds during the life of the issue to counterbalance this increase in debt. As a consequence, at the maturity of the bond issue, the company might well have been burdened with a larger debt, while at the same time the value of its properties, against which no depreciation reserve was provided, would be considerably lower. The Commission advised the interested parties that, in its opinion, the plan would serve only as a prelude to another reorganization and the plan was materially modified. A number of similar improvements in plans were accomplished in this manner and through recommendations to the courts.

Fairness of Plans.

Perhaps the most controversial of the issues presented in the course of the Commission's participation in reorganizations is the question whether a proposed plan is "fair and equitable" as required by the statute. In appraising this aspect of plans, the Commission has taken the position that, to be fair, plans must provide full recogition for claims in the order of their legal and contractual priority, er in cash or new securities or both; and that junior claims may