Imágenes de páginas
PDF
EPUB

ing free refundability of utility bond issues subject to the Holding Company Act.

In the 24th Annual Report, mention was made (at page 131) of a comprehensive study of redemption provisions of corporate bonds being conducted at the Wharton School of Finance and Commerce of the University of Pennsylvania, and that a member of the staff of the Commission was serving on an advisory committee with respect to such study. A preliminary draft report on the study was completed shortly after the close of fiscal year 1959.

Of the three preferred stock issues with an aggregate par value of $19 million with respect to which applications or declarations were filed during the fiscal year, two issues had charter provisions in substantial conformity with the Statement of Policy. The other issue failed to conform in certain respects relating to, among other things, restrictions against (a) amending the charter in a manner adverse to the preferred stockholders, (b) mergers or consolidations, (c) reacquisitions by the issuer of any of its outstanding preferred stock, and (d) issuance or assumption of short-term unsecured debt. Accordingly, the Commission, in approving the proposed issue of preferred stock, conditioned its order so as to require the necessary investor protection.*

46

"Holding Company Act Release No. 13992 (Apr. 27, 1959).

PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT, AS AMENDED

The role of the Commission under chapter X of the Bankruptcy Act, which provides a procedure for reorganizing corporations in the United States district courts, differs from that under the various statutes which it administers in that the Commission does not initiate chapter X proceedings or hold its own hearings. It has no authority to determine any of the issues in these proceedings. However, at the request of the judge or on the Commission's own motion, if approved by the judge, the Commission may participate in such proceedings in order to provide independent, expert assistance to the court and investors on matters arising in such proceedings and, where the Commission considers it appropriate, it may file advisory reports on reorganization plans. Thus, the facilities of the Commission's technical staff and its disinterested recommendations are simply placed at the service of the judge and the parties, affording them the views of disinterested experts in a highly complex area of corporate law and finance. The Commission pays special attention to the interests of public security holders, who may not otherwise be effectively represented.

In any case where the scheduled indebtedness of a debtor corporation does not exceed $3 million, the judge under section 172 of chapter X may, before approving any plan of reorganization, submit such plan to the Commission for its examination and report. If the indebtedness exceeds $3 million, the judge must submit the plan to the Commission before he may approve it. Where the Commission files a report, copies of it, or a summary thereof, must be sent to all security holders and creditors when they are asked to vote on the plan. The Commission has no authority to veto or require the adoption of a plan of reorganization and is not obligated to file a formal advisory report on a plan.

The Commission's advisory reports on plans of reorganizations are usually widely distributed and serve an important function. However, they represent only one aspect of the Commission's activities in cases in which it participates. The Commission, as a party to a chapter X proceeding, is actively interested in the solution of every major issue arising therein and the adequate performance of its duties re

quires that it undertake in most cases intensive legal and financial studies. Even in cases where the plans are not submitted to the Commission and no report is filed, the Commission must consider various reorganization proposals of interested parties while plans are being formulated, and be prepared to comment fully upon all plans that are the subject of hearings for approval or confirmation.

In the exercise of its functions under chapter X the Commission has endeavored to assist the courts in achieving equitable, financially sound, expeditious and economical readjustments of the affairs of corporations in financial distress. To aid in attaining these objectives the Commission has lawyers, accountants and financial analysts in its New York, Chicago and San Francisco regional offices who keep in close touch with all chapter X hearings and issues. Supervision and review of the regional officers' chapter X work is the responsibility of the Division of Corporate Regulation of the Commission, which also handles the actual trial work in cases arising in the Atlanta and Washington, D.C., regional areas.

SUMMARY OF ACTIVITIES

The Commission actively participated in 49 reorganization proceedings involving 69 companies (48 principal debtor corporations and 21 subsidiaries of those debtors) during the past fiscal year. The stated assets of these 69 companies totaled approximately $583,626,000 and their indebtedness totaled approximately $540,501,000. The proceedings were scattered among district courts in 18 states, as follows: 11 proceedings in New York, 6 in Illinois, 5 in Kentucky, 4 in Nevada, 3 in Pennsylvania, 2 each in Florida, Texas and Oklahoma, and 1 each in Washington, Iowa, Virginia, Maryland, North Dakota, New Jersey, Louisiana, Connecticut, Colorado, and Utah. During the year, the Commission entered its appearance in 14 new proceedings under chapter X involving companies with aggregate stated assets of approximately $62,037,000 and aggregate indebtedness of approximately $39,165,000. They involved the rehabilitation of companies engaged in such varied businesses as uranium mining, motion picture production, hotel and country club operations, and the manufacturing of precision instruments, building materials and miscellaneous products. Proceedings involving 4 principal debtor corporations were closed during the year. At the end of the year, the Commission was actively participating in 45 reorganization proceedings involving 67 companies.

THE COMMISSION AS A PARTY TO PROCEEDINGS

The Commission has not considered it necessary or appropriate that it participate in every chapter X case. Apart from the fact that the

1 The appendix contains a complete list of reorganization proceedings in which the Commission participated as a party during the fiscal year ended June 30, 1959.

administrative burden of participating in every one of the approximately 90 cases instituted during the fiscal year would be unsurmountable with its present staff, many of the cases involve only trade or bank creditors and a few stockholders. The Commission has sought to participate principally in those proceedings in which a substantial public investor interest is involved. This is not the only criterion, however, and in some cases involving only limited public investor interest, the Commission has participated because an unfair plan had been or was about to be proposed, the public security holders were not adequately represented, the reorganization proceedings were being conducted in violation of important provisions of the act, other facts indicated that the Commission could perform a useful service or the judge requested the Commission to participate.

PROCEDURAL MATTERS

The Commission, when a party in chapter X proceedings, has been diligent to urge upon the court the procedural safeguards to which all parties are entitled. The Commission also attempts in its interpretation of the statutory requirements to encourage uniformity in the construction of chapter X and the procedures thereunder.

Prior to the filing of an involuntary petition for the reorganization of the F. L. Jacobs Company in the United States District Court for the Eastern District of Michigan,2 the United States District Court for the Southern District of New York appointed receivers for the debtor company to preserve its assets and to protect the interests of the stockholders, creditors, employees and the general public. This receivership grew out of an extensive investigation by the Commission's New York regional office with regard to possible violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. An injunction to restrain the receivers was issued by the United States District Court in Michigan on March 23, 1959. The receivers petitioned that court to dismiss the chapter X petition on the grounds that it was collusively filed and that the debtor's principal place of business was New York, or in the alternative, to transfer the proceeding to New York. The Commission participated in the hearing to develop the facts regarding the debtor's place of business.

The court held that the petition was properly filed and denied the relief requested. An appeal by the receivers was pending in the United States Court of Appeals for the Sixth Circuit at the close of the fiscal year.

There was also a venue problem in the proceeding involving Verdi Development Company, whose common stock was withdrawn in 1958 from listing and trading on the San Francisco Mining Exchange by Commission order.

2 In the Matter of F. L. Jacobs Company (No. 42235).

The debtor filed a petition for reorganization in the United States District Court of Nevada and the Commission filed a motion to transfer the case, on the ground that the company's principal place of business was not, as alleged, in Nevada. This motion became moot because the Court dismissed the petition. A new petition, filed in the Central District of Utah, was approved.3

The appeal in the Selected Investments case involved the questions whether public investors in a trust fund were creditors, despite provisions in their "certificate bonds" consistent with those of an equity security, and whether the separate entities of the trust fund and the corporation controlling it could be disregarded where the corporation's only business was the management of the fund and where, in the sale of the certificate bonds to public investors, the corporation had led the investors to believe that they were lending their money to it. The Commission supported the trustee in successfully urging the Court of Appeals to affirm the District Court's order approving the petition for reorganization."

6

In the Shawano Development Corporation case, the Commission sought the removal of the president of the debtor as additional trustee on the ground that he was a substantial stockholder and creditor of the debtor, and so was not a disinterested person as required by sections 156 and 158 of chapter X. In addition, it was urged that no operations were being conducted by the debtor and hence there was no need for an operating trustee. The additional trustee resigned after the Commission's motion was filed.

Under the act, the trustee's counsel, like the trustee himself, must be disinterested, since each plays a key role in the reorganization. In the previously mentioned Jacobs case the Commission took the position that the attorney for the trustees was not disinterested. The Commission stated that the trustees' attorney had actively collaborated with the attorney for the debtor who had referred to him two of the three petitioning creditors, that he had first appeared as attorney for the petitioning creditors, and that these facts indicated the existence of a materially adverse interest. The attorney resigned while a decision on an application for his removal was pending.

PROBLEMS IN CONNECTION WITH THE ADMINISTRATION OF ESTATES

During the course of the reorganization proceedings involving Selected Investments Corporation,' the court sua sponte ordered a

In the Matter of Verdi Development Co. (C.D. Utah, No. B. 89-59).

In the Matter of Selected Investments Trust Fund and Selected Investments Corporation, (W.D. Okla., No. 16080).

Selected Investments Corporation v. Duncan, et al., 260 F. 2d 918 (C.A. 10, 1958), cert. den. Hart, et al. v. Selected Investments Corporation, 359 U.S. 901 (1958). The Commission also supported the trustee in opposing an earlier attempt to secure a writ of prohibition from the Court of Appeals against the assumption of jurisdiction by the District Court.

• In the Matter of Shawano Development Corp., (D. Wyoming, No. 3163). See fn. 5, supra.

« AnteriorContinuar »