Imágenes de páginas
PDF
EPUB

Company, and Portland General Electric Company. The company has not proceeded with its application pending the outcome of a proceeding before the Federal Power Commission in which the granting of a license to Pacific Northwest is being contested by certain Public Utility Districts. After the close of the fiscal year an examiner of the Federal Power Commission issued a decision and order, subject to review, granting the license to Pacific Northwest. It is expected that the company will now proceed with its application before this Commission.

"Bottled Gas" Companies

Unusual problems have arisen from time to time involving various so-called "bottled gas" companies which distribute gas (usually propane or butane) in portable tanks or containers. A number of companies have aggressively expanded in this field by acquiring the capital stocks of bottled gas companies which previously were operated independently or by organizing new subsidiary companies to engage in the business. One parent company, for example, recently had about 150 such subsidiary companies and another had more than 70. The operations of the subsidiaries are conducted in many different States. So long as a company distributes gas only in portable containers, it is not a "gas utility company" as defined in the Holding Company Act, and if all the subsidiaries of a parent company are strictly "bottled gas" companies or other nonutility companies, the parent company is not a "holding company" as defined in the Act.

However, some subsidiary companies in bottled gas systems have changed their character by undertaking the distribution of liquefied petroleum gas or natural gas at retail through pipes, thereby becoming "gas utility companies" within the meaning of the Act. The parent company of any such subsidiary automatically becomes a "holding company," if it is not one already. "if

The staff of the Commission has found it necessary to observe closely the operational changes which have been occurring in bottled gas systems. Where changes of the kind described have been observed, the staff has sought to assure that the parent company either registers under the Act, or applies for an exemption from the Act, if available.

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY

ACT

The Commission's role 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 other statutes which it administers. The Commission does not initiate Chapter X proceedings or hold its own hearings, and it has no authority to determine any of the issues in these proceedings. The Commission participates in such proceedings in order to provide independent, expert assistance to the court, the participants, and investors on matters arising therein. Thus, the facilities of the Commission's technical staff and its disinterested recommendations are placed at the service of the judge and the parties 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.

Where the scheduled indebtedness of a debtor corporation exceeds $3 million, the judge under Section 172 of Chapter X must, before approving any plan of reorganization, submit it to the Commission for its examination and report. If the indebtedness does not exceed $3 million, the judge may, if he deems it advisable to do so, submit the plan to the Commission before deciding whether to approve it. Where the Commission files a report, copies or a summary 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 has lawyers, accountants and financial analysts in its New York, Chicago and San Francisco regional offices who are actively engaged in Chapter X cases in which the Commission has filed its appearance. Supervision and review of the regional offices' Chapter X work is the responsibility of the Division of Corporate Regulation of the Commission, which, through its Branch of Reorganization, also serves as a field office in cases arising in the Atlanta and Washington, D.C., regional areas.

SUMMARY OF ACTIVITIES

The Commission's activities in Chapter X this year increased over the previous year and will probably be even more extensive in the fiscal year 1963. In fiscal year 1962, the Commission actively participated in 64 reorganization proceedings involving 101 companies (64) principal debtor corporations and 37 subsidiaries of those debtors).1 The stated assets of these 101 companies totalled approximately $612,400,000 and their indebtedness totalled approximately $572,300,000. The proceedings were scattered among district courts in 27 states and the District of Columbia as follows: 9 proceedings in New York; 5 each in Illinois and California; 4 each in Maryland, Kentucky and North Carolina; 3 each in Colorado, Oklahoma, Florida and Texas; 2 each in Pennsylvania, Michigan and Nevada; and 1 each in Washington, Iowa, Virginia, Kansas, Georgia, New Jersey, Louisiana, Wyoming, Indiana, Mississippi, Montana, Arizona, New Mexico, Arkansas and the District of Columbia.

During the year, the Commission entered its appearance in 18 new proceedings under Chapter X involving companies with aggregate stated assets of approximately $108,292,000 and aggregate indebtedness of approximately $85,786,000. They involved the rehabilitation of corporations engaged in the operation of such varied businesses as a deluxe resort hotel, real estate development, fertilizer plant, automobile race track, retail discount stores, farmers cooperative, cement manufacturing, chain food stores, heavy construction contracting, mining, real estate and mortgage investment and machine products manufacturing.

Proceedings involving 5 principal debtor corporations were closed during the year. At the end of the year, the Commission was actively participating in 59 reorganization proceedings involving 95 companies. The Commission has not considered it necessary or appropriate to participate in every Chapter X case. Apart from the excessive administrative burden, many of the cases involve only trade or bank creditors and few public investors. The Commission seeks to participate principally in those proceedings in which a substantial public investor interest is involved. However, the Commission may also participate because an unfair plan has been or is about to be proposed, the public security holders are not adequately represented, the reorganization proceedings are being conducted in violation of important provisions of the Act, the facts indicate that the Commission can perform a useful service, or the judge asks the Commission to participate.

1 Appendix table 12 contains a complete list of reorganization proceedings in which the Commission participated during the fiscal year ended June 30, 1962.

PROCEDURAL AND ADMINISTRATIVE MATTERS

When it has participated in Chapter X proceedings, the Commission has urged upon the court the procedural or substantive safeguards to which all parties are entitled. The Commission also has attempted in its interpretations of the statutory requirements to encourage uniformity in the construction of Chapter X and the procedures thereunder.

2

In Cal-West Aviation, Inc., the Court appointed as co-trustee the president of the debtor, who was also a stockholder and director. After he was advised that he was disqualified from serving as such under Section 158(1) of Chapter X, he resigned but was retained as general manager.

3

In Flora Sun Corporation, the Commission objected to the retention of the "additional trustee" on the ground that he was not disinterested. The additional trustee had, in effect, secured an option to acquire control of the debtor on behalf of a corporation of which he was president. However, the Court rejected the Commission's contention that retention of the trustee would be contrary to Section 158(4) of the Bankruptcy Act.

4

In Pickman Trust Deed Corporation, investors who had acquired notes and second deeds of trust through the debtor were classified by the Court as creditors, each secured by the deed assigned and allocated to him. On this basis, the creditors supported certain compromises proposed by the trustee and approved by the Court. After the time for appeal had run, the trustee sought to have investors with unrecorded assignments reclassified as unsecured creditors. The Court agreed with the Commission that the trustee was estopped since investors had relied on the prior classification order.

The Court also accepted the view of the Commission that funds received from investors and held in separate accounts pending investment should be treated as trust funds rather than general assets. Since there was a deficiency in these accounts, the Court fixed the manner of distribution by the adaptation of a formula approved by Judge Learned Hand in In re Schmidt.

In U.S. Durox Corp. of Colorado," the District Court confirmed a plan of reorganization providing for the liquidation of the debtor. The highest bidder for all of the debtors' assets was the Small Business Administration, which bid the approximate amount of the bal

2 In the Matter of Cal-West Aviation, Inc. (N.D. Calif., No. 62708).

In the Matter of Flora Sun Corporation (S.D. Fla., No. 55-62-Bk).

In the Matter of Pickman Trust Deed Corporation (N.D. Calif., No. 57469).

See the discussion of this case in the 27th Annual Report, pp. 132-3.

298 Fed. 314 (S.D. N.Y., 1923).

In the Matter of U.S. Durox Corp. of Colorado (D. Colo., No. 22895).

[blocks in formation]

ance of its first mortgage on the debtor's assets. The Court adopted the Commission's position that the costs of the Chapter X administration should be paid out of the mortgaged assets, and the Court of Appeals denied the petition of the SBA for leave to appeal.

TRUSTEE'S INVESTIGATION

A complete accounting for the stewardship of corporate affairs by the old management is a requisite under Chapter X. One of the primary duties of the trustee is to make a thorough study of the debtor to assure the discovery and collection of all assets of the estate, including claims against officers, directors, or controlling persons who may have mismanaged the debtor's affairs. The staff of the Commission often aids the trustee in his investigation.

In Texas Portland Cement Company, a comprehensive investigation by the trustees, assisted by the Commission's staff, led to a reduction in the debtor's total indebtedness from approximately $5,200,000 to about $3,150,000, and almost 215,000 shares of capital stock were cancelled or surrendered. The plan of reorganization, confirmed by the Court, provided for the subordination of the stock claims of certain of the debtor's directors who had not settled with the trustee. In confirming the plan, the Court found that these directors had been negligent "to the degree that it constitutes a breach of their fiduciary duty in the management of the corporate affairs." 10

In Shawano Development Corporation,11 as the result of an investigation in which the staff of the Commission is participating, the trustee has filed a plenary action in the United States District Court in Jacksonville, Florida, against twenty-two named defendants, seeking compensatory damages in the amount of approximately $3,000,000.12 In DePaul Educational Aid Society,13 as previously reported, both the Commission and the trustee urged that DePaul University's first mortgage claim should be subordinated to that of the public bondholders. A settlement was effected whereby DePaul University agreed to reduce its claim by 45%.

14

ADVISORY REPORTS ON PLANS OF REORGANIZATION

During the fiscal year, the Commission issued two advisory reports and one supplemental advisory report. Generally speaking, an advis

8 (C.A. 10, No. 6949).

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

10 205 F. Supp. 159, 162.

11 In the Matter of Shawano Development Corporation (D.C. Wyo., No. 3163).

12 Reynders v. Foremost Dairies, Inc., et al. (S.D. Fla., No. 4892 Civ.-J).

13 In the Matter of DePaul Educational Aid Society (N.D. Ill., No. 59 B 41). 14 27th Annual Report, p. 133.

« AnteriorContinuar »