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interpretation of section 77B (h), but the revision embodied
in section 264 is designated to remove all doubt as to the
correctness of that interpretation.".]

B. Section 393 of the Bankruptcy Act (11 U.S.C. 793): "SEC. 393. a. The provisions of section 5 of the Securities Act of 1933 shall not apply to

"(1) any security issued by a receiver, trustee, or debtor in possession pursuant to section 344 of this Act;3 or

"(2) any transaction in any security issued pursuant to an arrangement in exchange for claims against the debtor or partly.in exchange and partly for cash and/or property, or issued upon exercise of any right to subscribe or conversion privilege so issued, except (A) transactions by an issuer or an underwriter in connection with a distribution otherwise than pursuant to the arrangement, and (B) transactions by a dealer as to securities constituting the whole or a part of an unsold allotment to or subscription by the dealer as a participant in a distribution of such securities by the issuer or by or through an underwriter otherwise than pursuant to the arrangement.

"b. As used in this section, the terms 'security,' 'issuer,' 'underwriter,' and 'dealer' shall have the meanings provided in section 2 of the Securities Act of 1933, and the term 'Securities Act of 1933' shall be deemed to refer to such Act as heretofore or hereafter amended.".

[NOTE: Section 393 is contained in chapter XI of the amendatory Act, entitled "Arrangements".]

C. Section 518 of the Bankruptcy Act (11 U.S.C. 918) : "SEC. 518. a. The provisions of section 5 of the Securities Act of 1933 shall not apply to

"(1) any security issued by a trustee or debtor in possession pursuant to section 446 of this Act; or

"(2) any transaction in any security issued pursuant to an arrangement in exchange for securities of or claims against the debtor or partly in such exchange and partly for cash and/or property, or issued upon exercise of any right to subscribe or conversion privilege so issued, except (a) transactions by an issuer or an underwriter in connection with a distribution otherwise to the arrangement, and (b) transactions by a dealer as to securities constituting the whole or a part of an unsold allotment to or subscription by such dealer as a participant in a distribution of such securities by the issuer or by or through an underwriter otherwise than pursuant to the arrangement.

3 Sec. 344 of the Act 11 U.S.C. § 744, referred to in sec. 393. a. (1), reads as follows: "Sec. 344. During the pendency of a proceeding for an arrangement, or after the confirmation of the arrangement where the court has retained jurisdiction, the court may upon cause shown authorize the receiver or trustee, or the debtor in possession, to issue certificates of indebtedness for cash, property, or other consideration approved by the court, upon such terms and conditions and with such security and priority in payment over existing obligations as in the particular case may be equitable."

4 Sec. 446, referred to in sec. 518, 11 U.S.C. & 846, reads as follows:

"Sec. 446. During the pendency of a proceeding for an arrangement, or after the confirmation of the arrangement where the court has retained jurisdiction, the court may upon cause shown authorize the trustee or debtor in possession to issue certificates of indebtedness for cash, property, or other consideration approved by the court, upon such terms and conditions and with such security and priority in payment over existing obligations as in the particular case may be equitable."

Securities Act of 1933, and the term 'Securities Act of 1933' shall be deemed to refer to such Act as heretofore or hereafter amended.".

[NOTE: Section 264, which is contained in chapter X of the amendatory Act entitled "Corporate Reorganization," is to replace the following excerpt from subdivision (h) of section 77B of the Bankruptcy Act as contained in c. 424, 48 Stat. 920, approved June 7, 1934:

*** All securities issued pursuant to any plan of reorganization confirmed by the court in accordance with the provisions of this section, including, without limiting the generality of the foregoing, any securities issued pursuant to such plan for the purpose of raising money for working capital and other purposes of such plan and securities issued by the debtor or by the trustee or trustees pursuant to subdivision (c), clause (3), of this section, and all certificates of deposit representing securities of or claims against the debtor which it is proposed to deal with under any such plan, shall be exempt from all the provisions of the Securities Act of 1933, approved May 27, 1933, except the provisions of subdivision (2) of section 12, and section 17 thereof, and except the provisions of section 24 thereof as applied to any willful violation of said section 17.".

Subdivision (c), clause (3), referred to in the above excerpt from section 77B, reads as follows:

"(c) Upon approving the petition or answer or at any time thereafter, the judge, in addition to the jurisdiction and powers elsewhere in this section conferred upon him, *** (3) may, for cause shown, authorize the debtor or the trustee or trustees, if appointed, to issue certificates for cash, property, or other consideration approved by the judge for such lawful purposes, and upon such terms and conditions and with such security and such priority in payments over existing obligations, secured or unsecured, as may be lawful in the particular case; ***.".

The effect of section 264 and its relation to section 77B (h) is discussed in the following excerpts from S. Rept. No. 1916, 75th Cong. (3d sess.), at p. 38:

"Section 264 is derived in part from section 77B (h). Under this provision no registration in compliance with the Securities Act of 1933 is required for the issuance of securities to the security holders or creditors of the debtor in whole or part exchange for their old securities or claims. However, new issues sold by the reorganized company for cash are required to be registered under the Securities Act just as any other new issues of securities, in order that prospective investors may have all material information before buying. Furthermore, the exemption for the issuance of securities to security holders and creditors under the plan does not extend to any subsequent redistribution of such securities by the issuer or an underwriter; for any such redistribution is subject to the same need for public disclosure of relevant data as in the case of a new issue. This need for registration upon redistribution has been recognized by the Securities and Exchange Commission in its

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interpretation of section 77B (h), but the revision embodied in section 264 is designated to remove all doubt as to the correctness of that interpretation.".]

B. Section 393 of the Bankruptcy Act (11 U.S.C. 793): "SEC. 393. a. The provisions of section 5 of the Securities Act of 19 shall not apply to

"(1) any security issued by a receiver, trustee, or debtor in po session pursuant to section 344 of this Act; 3 or

3

"(2) any transaction in any security issued pursuant to an a rangement in exchange for claims against the debtor or partly. exchange and partly for cash and/or property, or issued upo exercise of any right to subscribe or conversion privilege so issue except (A) transactions by an issuer or an underwriter in conne tion with a distribution otherwise than pursuant to the arrang ment, and (B) transactions by a dealer as to securities constitutin the whole or a part of an unsold allotment to or subscription by th dealer as a participant in a distribution of such securities by th issuer or by or through an underwriter otherwise than pursuan to the arrangement.

"b. As used in this section, the terms 'security,' 'issuer,' 'unde writer,' and 'dealer' shall have the meanings provided in section 2 the Securities Act of 1933, and the term 'Securities Act of 1933' sha be deemed to refer to such Act as heretofore or hereafter amended.

[NOTE: Section 393 is contained in chapter XI of the amendatory Act, entitled "Arrangements".]

C. Section 518 of the Bankruptcy Act (11 U.S.C. 918) : "SEC. 518. a. The provisions of section 5 of the Securities Act of 193 shall not apply to

"(1) any security issued by a trustee or debtor in possessio pursuant to section 446 of this Act; * or

4

"(2) any transaction in any security issued pursuant to a arrangement in exchange for securities of or claims against th debtor or partly in such exchange and partly for cash and/o property, or issued upon exercise of any right to subscribe or con version privilege so issued, except (a) transactions by an issue or an underwriter in connection with a distribution otherwis to the arrangement, and (b) transactions by a dealer as to securi ties constituting the whole or a part of an unsold allotment to o subscription by such dealer as a participant in a distribution o such securities by the issuer or by or through an underwrite otherwise than pursuant to the arrangement.

3 Sec. 344 of the Act 11 U.S.C. § 744, referred to in sec. 393, a. (1), reads as follows: "Sec. 344. During the pendency of a proceeding for an arrangement, or after the cor firmation of the arrangement where the court has retained jurisdiction, the court ma upon cause shown authorize the receiver or trustee, or the debtor in possession, to issu certificates of indebtedness for cash, property, or other consideration approved by the cour upon such terms and conditions and with such security and priority in payment ove existing obligations as in the particular case may be equitable."

4 Sec. 446, referred to in sec. 518, 11 U.S.C. & 846, reads as follows:

"Sec. 446. During the pendency of a proceeding for an arrangement, or after the con firmation of the arrangement where the court has retained jurisdiction, the court may upo cause shown authorize the trustee or debtor in possession to issue certificates of indebted ness for cash, property, or other consideration approved by the court, upon such terms an conditions and with such security and priority in payment over existing obligations as i the particular case may be equitable."

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"b. As used in this section, the terms 'security,' 'issuer,' 'underwriter,' and 'dealer' shall have the meanings provided in section 2 of the Securities Act of 1933, and the term 'Securities Act of 1933' shall be deemed to refer to such Act as heretofore or hereafter amended.". $801 [NOTE: Section 518 is contained in chapter XII of the amended Act entitled "Real Property Arrangements by Persons other than Corporations".]

D. Excerpt from section 77 (f) of the Bankruptcy Act (11 U.S.C. 205 (f)):

"*** The provisions of title I and of section 5 of the Securities Act of 1933, as amended, shall not apply to the issuance, sale, or exchange of any of the following securities, which securities and transaction therein shall, for the purposes of said Securities Act, be treated as if they were specifically mentioned in sections 3 and 4 of the said Securities Act, respectively: (1) All securities issued pursuant to any plan of reorganization confirmed by the judge in accordance with the provisions of this section; (2) all securities issued pursuant to such plan for the purpose of raising money for working capital and other purposes of such plan; (3) all securities issued by the debtor or by the trustee or trustees pursuant to subdivision (c), clause (3) of this section; (4) all certificates of deposit representing securities of, or claims against, the debtor, with the exception of such certificates of deposit as are issued by committees not subject to subsection (p) hereof. The provisions of subdivision (a) of section (14) of the Securities Exchange Act of 1934 shall not be applicable with respect to any action or matter which is within the provisions of subsection (p) hereof."

5

5 Subdivision (c), clause (3), as amended Oct. 24, 1951, c. 543, § 1, 65 Stat. 606, 11 U.S.C.205(c), referred to in the above excerpt, reads as follows:

"(c) After approving the petition:

"(3) The judge may, upon not less than fifteen days' notice published in such manner and in such newspapers as the judge may in his discretion determine, which notice so determined shall be sufficient, for cause shown, and with the approval of the Commission [Interstate Commerce Commission], in accordance with section 20 (a) of the Interstate Commerce Act, as now or hereafter amended, authorize the trustee or trustees to issue certificates for cash, property, or other consideration approved by the judge, for such lawful purposes and upon such terms and conditions and with such security and such priority in payments over existing obligations, secured or unsecured, or receivership charges, as might be in an equity receivership be lawful. Where such certificates are authorized to provide funds to pay for the acquisition, assembly or installation of safety equipment or materials related thereto, or for the purpose of reimbursing the trustee or trustees for funds so expended, the judge may direct (without limitation of his power to make such direction in the absence of this provision) that the certificates shall have such lien on the property of the debtor and shall be entitled to such priority in payments over existing obligations, secured or unsecured, and receivership charges and present or future duties, debts or taxes or other obligations in favor of or payable to any State or any subdivision. agency or instrumentality thereof and interest or penalties, and to such parity with all or any portion of the other costs or expenses of administration or operation as in the particular case the judge may find equitable at the time of authorizing the issuance of such certificates, regardless of whether such obligations, charges, costs or expenses, duties, debts, or taxes constitute or are secured by liens on real or personal property or shall have become payable before or after the issuance of such certificates."

6 Subsection (p), referred to in the above excerpt, reads as follows:

"(p) It shall be unlawful for any person, during the pendency of proceedings under this section or of receivership proceedings against a railroad corporation in any State or Federal court, (a) to solicit, or permit the use of his name to solicit, from any creditor or shareholder of any railroad corporation by or against whom such proceedings have been instituted, any proxy or authorization to represent any such creditor or shareholder in such proceedings or in any matters relating to such proceedings. or to vote on his behalf for or against, or to consent to or reject, any plan of reorganization proposed in connection with such proceedings; or (b) to use, employ, or act under or pursuant to any such proxy or authorization from any such creditor or shareholder which has been solicited or obtained prior to the institution of such proceedings; or (c) to solicit the deposit by any such creditor, or shareholder, of his claim against or interest in such railroad corporation. or any instrument evidencing the same, under any agreement authorizing anyone other than

(Continued)

suer,' 'und section?

of 1933' sh mended.".

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he Securi e, sale, or: s and trans be treated 4 of the s rsuant to ance witht suant to s tal and ot debtor or se (3) of th urities of certificates bsection 4) of the S ith respect ubsection (

65 Stat. 606

d in such man which notice! of the Commissi of the Intersta Istees to issue e, for such lat d such priority rship charges are authorized fety equipment ee or trustees wer to make su e such lien on th ents over existi or future duties r any subdivision h parity with & ion as in the p è issuance of suc expenses, duties erty or shall hav

eedings under th y State or Feder creditor or share edings have bee or shareholder e on his behalf f sed in connectio to any such pro licited or obtaine posit by any su ad corporation. anyone other tha (Continued

E. Section 3(a) (2) of the Securities Act exempts from the registra tion provisions of that Act

'any security which is an industrial development bond (as define in section 103 (c) (2) [Now 103 (b) (2)] of the Internal Revenu

(Continued)

such depositor to represent such depositor in such proceedings or in any matters relati
to such proceedings, including any matters relating to the deposited security or claim;
to vote such claim or interest or to consent to or reject any such plan of reorganization
or (d) to use, employ, or act under or pursuant to any such agreement with such deposit
which has been solicited or obtained prior to the institution of such proceedings; unle
and until, upon proper application by any person proposing to make such solicitation or
use, employ, or act under or pursuant to such proxies, authorization, or deposit agreement
and after consideration of the terms and conditions (including provisions governing th
compensation and expenses to be received by the applicant, its agents and attorneys, fo
their services) upon which it is proposed to make such solicitation or to use, employ,
act under or pursuant to such proxies, authorizations, or deposit agreements, the Con
mission [Interstate Commerce Commission] after hearing by order authorizes such solicita
tion, use, employment, or action: Provided, however, That nothing contained in th
section shall be applicable to or construed to prohibit any person, when not part of a
organized effort, from acting in his own interest, and not for the interest of any othe
through a representative or otherwise, or rom authorizing a representative to act for hi
in any of the foregoing matters, or to prohibit groups of not more than twenty-five bon
fide holders of securities or claims or groups of mutual institutions from acting togethe
for their own interests and not for others through representatives or otherwise or fro
authorizing representatives of such groups to act for them in respect to any of the for
going matters. The Commission shall make such order only if it finds that the terms an
conditions upon which such solicitation, use, employment, or action is proposed are reason
able, fair, and in the public interest, and conform to such rules and regulations as th
Commission may provide. The Commission shall have the power to make such rules an
regulations respecting such solicitation, use, employment, or action and with respect to th
terms and the provisions of such proxies, authorizations, and deposit agreements, and wit
respect to such other matters in connection with the administration of this subsection as
deems necessary or desirable to promote the public interest, and to insure proper practice
in the representation of creditors and stockholders through the use of such proxies, autho
izations, or deposit agreements and in the solicitation thereof. It shall be unlawful for an
person to solicit any such proxy, authorization, or the deposit of any such claim or interes
or to use, employ, or act under or pursuant to any such proxy, authorization, or deposi
agreement which has been solicited or obtained prior to the institution of such proceeding
in violation of the rules and regulations so prescribed.

"Every application for authority shall be made in such form and contain such matters a the Commission may prescribe. Every such application shall be made under oath, signed by or on behalf of, the applicant by a duly authorized agent having knowledge of the matter therein set forth. The Commission may modify any order authorizing such solicitation, use employment, or action by a supplemental order, but no such modification shall invalidat action previously taken, or rights or obligations which have previously arisen, in conformit with the Commission's prior order or orders authorizing such solicitation, use, employ ment, or action.

"The Commission may, in its discretion, make such investigations as it deems necessar to determine whether any person has violated or is about to violate any provision of thi subsection (p) or any rule or regulation thereunder, and may require or permit any perso to file with it a statement in writing, under oath, or otherwise, as the Commission shal determine, as to all the facts and circumstances concerning the matter to be investigated The Commission is authorized, in its discretion, to publish information concerning any suc violations, and to investigate any such facts, conditions, practices, or matters as it ma deem necessary or proper to aid in the enforcement of the provisions of this subsection (p) in the prescribing of rules and regulations thereunder, or in securing information to serv as a basis for recommending further legislation concerning the matters to which thi subsection relates.

"Any person who willfully violates any provision of this subsection, or any rule o regulation made thereunder the violation of which is made unlawful, or any person wh willfully and knowingly makes. or causes to be made. any statement in any application report, or document required to be filed hereunder or under any rule or regulation authorized hereby, which statement is false or misleading with respect to any material fact, shall b guilty of a misdemeanor, and on conviction in any United States court having jurisdiction shall be punished by a fine of not less than $1,000 nor more than $10.000 or by imprison ment for not less than one year nor more than three years, or by both such fine and im prisonment, in the discretion of the court; but no person shall be subject to imprisonmen under this section for the violation of any rule or regulation if he proves that he had n knowledge of such rule or regulation.

"The provisions of this subsection (p) shall not be applicable to any person or committe which has begun to solicit, obtain, or use proxies, authorizations, or deposit agreement prior to the effective date of this amendatory section in connection with proceedings unde this section as in force prior to such effective date or receivership proceedings against railroad then pending in any State or Federal court, unless such person or committe makes application to the Commission and receives authority to act as in this subsection provided, in which event the provisions of this subsection (p) shall be applicable to such person or committee, but such authorization shall not be upon terms which shall invalidat any action theretofore taken, or any rights or obligations which have theretofore arisen Provided, That with respect to committees which are not subject to this subsection (p) the judge shall scrutinize and may disregard anv limitations or provisions of any deposit agree ments, committee, or other authorizations affecting any creditor or stockholder acting unde this section and may enforce an accounting thereunder or restrain the exercise of any power which he finds to be unfair or not consistent with public policy, including the collec tion of unreasonable amounts for compensation and expenses.'

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