ory report is prepared only in a case involving a substantial public investor interest and presenting significant problems. On occasion, because of the exigencies of time or for other reasons, no written report is filed but, instead, Commission counsel is authorized to make an oral or written presentation detailing the Commission's views.

In Windermere Hotel Co.,15 the Commission filed an advisory report on amended plans for the reorganization of the debtor, which owned and operated the Windermere Hotel in Chicago. The trustee's plan, as amended, which was sponsored by a bondholder, gave the bondholders the alternative of receiving $70 in cash per $100 principal amount of bonds, or 5% 20-year subordinated debentures and new common stock in exchange for the outstanding bonds. The other plan, proposed by two bondholders named Shlensky, afforded the bondholders the option of receiving either $70 in cash or $20 in cash plus $50 principal amount of new 5% 15-year first mortgage bonds of the reorganized company for each $100 principal amount of bonds then held. The Shlenskys would receive all of the common stock of the reorganized company. Neither plan accorded the stockholders any participation.

The Commission concluded that both plans were fair, equitable and feasible in their provision for cash payment to the bondholders, but that the alternative proposals were not feasible, since no ceiling was placed upon the proposed debt of the reorganized company and because of the failure of the proposals to provide adequately for the payment of costs of administration and to include an undertaking by the respective sponsors to make the cash payment to bondholders. The proposal in the trustee's plan to issue securities was found in the advisory report to be unfair since it failed to classify separately the bondholders, other than the plan sponsor, for purposes of voting thereon; to indicate clearly the manner of selecting directors; to establish a proper voting procedure; and to provide proper safeguards in the provisions of the proposed indenture pursuant to which the new debentures would be issued. The proposal to issue securities under the Shlensky plan was found to be unfair because of its failure to indicate the terms of the new first mortgage indenture and to limit the amount of debt securities of the reorganized company.

The Shlensky plan, as amended, also proposed a public auction of the debtor's stock and guaranteed a bid which would give the bondholders $70 per $100 principal amount of bonds. The trustee's plan was amended to provide for a public auction of the debtor's assets at a minimum upset price of $2,285,000. In its Supplemental Advisory Report the Commission recommended that the prospective bidders

15 In the Matter of Windermere Hotel Co. (N.D. Ill., No. 60 B 8818).

should be permitted to designate their preference as between a bid for the debtor's assets directly or for appropriate new securities of a reorganized company, so that effective competitive conditions could be maintained.

The Court approved the Referee's recommendation that only the trustee's plan be approved. The Shlenskys filed a notice of appeal, but dismissed their appeal when the Court of Appeals required them to post a $2,000,000 bond. At the public auction sale the plan sponsor acquired the debtor's assets with a bid of $2,285,000.

In Texas Portland Cement Company,16 the Commission filed an advisory report recommending approval of a plan based upon the offer of Alpha Portland Cement Company to purchase all of the debtor's fixed assets and good-will for $4,250,000, to be paid partly in cash, and the balance in debentures of Alpha and by the assumption of a large claim allowed against the debtor. After payment of creditors' claims in full by cash and Alpha debentures, the remaining assets were to be distributed to stockholders, other than those whose stock was to be subordinated. The plan was confirmed by the Court.

17

In TMT Trailer Ferry Inc.,18 two plans for the reorganization of the debtor were found worthy of consideration by the Court, and submitted to the Commission for its examination and report. One plan provided for the internal reorganization of the debtor, vesting ownership and control in the unsecured creditors, the other for the sale of the debtor's assets for cash. Neither plan accorded participation to stockholders, since the debtor was said to be insolvent.

The Commission advised by letter that both plans were objectionable. In a memorandum, it was pointed out, inter alia, that the evidence on valuation was not adequate to justify the exclusion of stockholders, particularly since both plans allowed some $2,000,000 of seriously contested claims. The Commission also objected to the provisions in the internal plan which would permit the trustee to become the president of the reorganized company.

ACTIVITIES WITH REGARD TO ALLOWANCES

Every reorganization case ultimately presents the difficult problem of determining the allowance of compensation to be paid out of the debtor's estate to the various parties for services rendered and for expenses incurred in the proceeding. The Commission, which under Section 242 of the Bankruptcy Act may not receive any allowance from the estate for the services it renders, has sought to assist

16 In the Matter of Texas Portland Cement Company (E.D. Texas, No. 1606).

17 See the discussion of the subordination point at p. 98, supra.

18 In the Matter of TMT Trailer Ferry Inc. (S.D. Fla., No. 3659–M-Bk.

the courts in protecting debtors' estates from excessive charges and at the same time in equitably allocating compensation on the basis of the claimants' contributions to the administration of estates and the formulation of plans. A summary of interesting developments follows:

In Mason Mortgage & Investment Corp.,19 the trustee and his attorney filed applications for interim fees calculated on the basis of a percentage of their estimate of the value of their services for the total time devoted to the debtor's affairs. The Court held that it was impossible to determine what the value of any services rendered might be until the proceeding had been completed, and that any interim award based upon a percentage of a hypothetical amount assumed by an applicant to be the reasonable or full value of the services rendered to date would be improper.

In the Chamber of Commerce of the City of Newark,20 a proceeding in which the Commission was not participating, the Commission was granted permission to file a memorandum and present oral argument, amicus curiae, to oppose the petition of a firm of attorneys for the debtor which sought the Court's approval of a prior transfer of the debtor's bonds by a partner of the firm, as well as to oppose the firm's petition for allowance for legal services. During the Chapter X proceeding, the partner, who was co-executor of his father's will, and a beneficiary under the will, had sold $2,000 of the debtor's bonds which his father had owned. The Commission urged, and the Court agreed, that such sale was an absolute bar to compensation under Section 249.

In Selected Investments Corporation,21 an attorney who had represented the debtor in the Chapter X proceeding and the debtor's two principal officers in a pending action by the trustees against them for an accounting, 22 requested an allowance of $35,000. The District Court, in accordance with the Commission's recommendations, denied the request on the grounds that the attorney's services were not of benefit to the estate, and that he had represented conflicting interests. After obtaining leave to appeal, 23 the attorney later moved to dismiss his appeal, stating that he had accepted a $4,000 settlement from the reorganized debtor. The Commission objected to the settlement on

19 In the Matter of Mason Mortgage & Investment Corp., et al. (D.C. DC., Nos. 98-60 through 101-60).

20 In the Matter of Chamber of Commerce of the City of Newark, New Jersey (D.C. N.J. No. B-73-60).

21 In the Matter of Selected Investments Corporation (W.D. Okla., No. 10680).

The trustee eventually recovered a judgment in excess of $12,000,000. In addition, one of the clients was convicted of a violation of Section 17 of the Securities Act of 1933. See Burns v. U.S., 286 F. 2d 152 (C.A. 10, 1960).

23 B. H. Carey v. Selected Investment Corporation (C.A. 10, No. 6804),

the ground that all compensation was subject to approval by the reorganization court. Upon remand, the District Court again decided that no compensation should be paid. The attorney's appeal from such action was pending at the close of the fiscal year.

In Inland Gas Corporation, 24 the Commission objected to the application by a member of a committee for reimbursement of advances to the committee attorney, because the committee member had traded in the securities of one of the debtors in reorganization. The Commission argued that in Chapter X a committee and its attorney each had autonomous standing to apply for compensation for services rendered and for reimbursement of expenses incidental to such services, and that in seeking recovery from the estate for advances to his attorney, the committee member was requesting in effect to be subrogated to the attorney's rights. The Commission further argued that subrogation, as an equitable remedy, should not be permitted in this case in view of the substantial trading by the committee member. The District Court agreed and the Court of Appeals affirmed, stating that "we do not think the District Judge erred in enforcing the public. policy inherent in the provisions of Section 249 of the Act" and in refusing to permit subrogation.

25

Appellant also argued that the Commission was estopped from reversing its own prior recommedation that reimbursement be allowed. The Court of Appeals held that the doctrine of equitable estoppel was not applicable to the Commission's correction of a mistake of law and that in any event the Commission's prior views were not binding upon the district judge. The Court also noted the statement of the Commission that it "necessarily acts in the light of its continuing experience and that it would be remiss in its duties if . . . it failed to advise the District Court of what it believes to be the correct view of the facts and law..." because at an earlier stage in the proceeding "it may have expressed a different view."

INTERVENTION IN CHAPTER XI PROCEEDINGS

Chapter XI of the Bankruptcy Act provides a procedure by which debtors can effect arrangements with respect to their unsecured debts under court supervision. Where a proceeding is brought under that chapter but the facts indicate that it should have been brought under Chapter X, Section 328 of Chapter XI authorizes the Commission to make application to the court to dismiss the Chapter XI proceeding unless the debtor's petition is amended to comply with the requirements of Chapter X, or a creditors' petition under Chapter X is filed.

24 In the Matter of Inland Gas Corporation, et al. (D. Ky., No. 989-B).

25 Green Committee v. Williamson, 309 F. 2d 176 (C.A. 6, 1962).

Davega Stores Corporation filed a petition for an arrangement under Chapter XI of the Bankruptcy Act in February 1962.26 This company is engaged in the sale of sporting goods, photographic equipment and electrical appliances through a chain of 25 retail stores in the New York City area and concessions in discount centers in two other states. Davega's convertible debentures and its preferred and common stocks are publicly held and listed on the American Stock Exchange. The debtor had suffered substantial operating losses and had undergone several changes in management since 1959, and several attempts had been made to effect a merger or other financial arrangements with outside interests. In March 1962, the Commission filed a motion under Section 328 to dismiss the Chapter XI petition, and after lengthy hearings the motion was granted by the Court. Thereafter, the indenture trustee for the convertible debentures filed an involuntary Chapter X petition, the Chapter X petition was approved, and a disinterested trustee was appointed.

In Cal-West Aviation, Inc., the debtor, which owns and operates an airport and associated facilities in San Mateo County, California, filed a petition for an arrangement under Chapter XI. The Commission moved to dismiss the petition, urging that a thorough reorganization and an independent investigation into the acts of former management were necessary and that Chapter XI did not provide adequate means for such a reorganization or proper safeguards for the interests of the debtor's 2,300 public investors. The debtor's amended Chapter X petition was thereafter approved by the Court.

Los Angeles Trust Deed & Mortgage Exchange 28 was in the business of purchasing second trust deed notes which it sold to investors in the form of "investment contracts." It was the subject of an injunctive action brought by the Commission and a receiver was appointed. An involuntary petition in bankruptcy was filed in November 1960, an order of adjudication was entered in December 1960, and thereafter the debtor filed a Chapter XI petition. At the time the petition was filed, approximately $40,000,000 had been invested by some 10,000 investors in second deeds of trust. All the stock of the debtor was held by former officers.

In November 1961, the Commission filed a motion pursuant to Section 328, stressing the need for an independent investigation in order to protect the public investors and the fact that Chapter XI made no provision for such investigation. The District Court denied

28 In the Matter of Davega Stores Corporation (S.D. N.Y., No. 62 B 147). In the matter of Cal-West Aviation Inc. (N.D. Calif., No. 62708).

23 In the Matter of Los Angeles Trust Deed & Mortgage Exchange (S.D. Calif., No. 118, 178-Y).