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to rely on estimates made on the eve of payment and almost entirely unsupported by daily records or for it to expect a court to do so."

In the same decision the court of appeals ruled that the district judge erroneously denied any allowance to a law firm which represented a bondholder who made continued purchases and one sale of the debtor's bonds. The court held that Section 249 did not bar the law firm which did not trade and whose appearance for its client did not facilitate trading. It stated, “as the Commission points out the record indicates no problems of shifting interests and contains no indication that knowledge gained by the applicant was used to assist (the client's] trading. We agree with the Commission that, where a client has traded in the debtor's securities, weight must be given to the purpose for which the attorney appeared in the proceeding.”

Walco Building Corporation,34 the debtor, operated an office building constructed on land leased from the fee owners. The Chapter X proceeding was dismissed, and bondholders appealed. The appeal was thereafter dismissed under the terms of a settlement with the fee owners who advanced $25,000 to the indenture trustee to be paid as compensation to the bondholders' attorneys. The court agreed with the Commission that, since the services of counsel were rendered in connection with the Chapter X proceeding, the district court had exclusive jurisdiction to review and determine their compensation, even though such compensation was not to be paid by the estate.

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 or any other party in interest 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.

In American Trailer Rentals Company,35 reported previously, the Supreme Court reversed the court of appeals which had affirmed the district court's order denying the Commission's motion under Section 328.37 The Supreme Court held that “... although there is no absolute rule requiring that Chapter X be utilized in every case in which

Id. at 115-116.
34 N.D. III., No. 61 B 8059.

D.C. Colo., No. 33276.
29th Annual Report, p. 95 ; 30th Annual Report, p. 108.
S.E.C. v. American Trailer Rentals Co., 379 U.S. 594 (1965).

the debtor is publicly owned, or even where publicly held debt is adjusted, as a general rule Chapter X is the appropriate proceeding for adjustment of publicly held debt.” The Court indicated that there were “. . . narrow limits within which there are exceptions to this general rule . . . for example, where the public investors are few in number and familiar with the operations of the debtor, or where, although the public investors are greater in number, the adjustment of their debt is relatively minor, consisting, for example, of a short extension of time for payment."

The Commission's motion under Section 328 was granted by the district court, with the debtor's consent, in Liberty Mortgage Corporation.38 The debtor then filed an amendment petition under Chapter X, but the petition was dismissed for lack of good faith, the court having found that rehabilitation of the debtor as a going concern was not possible and that there was no alternative but to liquidate the debtor. Referring to the decision in American Trailer Rentals,39 the district court stated that, while the granting of a motion under Section 328 will be determinative of one of the elements of good faith specifically stated in Section 146(2)—that adequate relief is not obtainable under Chapter XI-the court must still determine whether it is reasonable to expect that a plan of reorganization can be effected. In S.E.C. v. Crumpton Builders, Inc., 40 decided before American Trailer Rentals, the court of appeals reversed the district court's denial of the Commission's Section 328 motion. On remand, the district court dismissed the debtor's amended petition under Chapter X, since it appeared that a successful reorganization under Chapter X was not feasible.

In Canandaigua Enterprises Corp.,“ reported previously, the court of appeals, prior to the American Trailer Rentals decision, reversed the order of the district court denying the Commission's Section 328 motion to dismiss the Chapter XI petition. The court stated that “. . . the need for a readjustment of publicly held debt creates a presumption in favor of Chapter X, whereas a case calling only for modification of the claims of trade creditors or others who have had private dealings with the debtor is presumptively to be handled under Chapter XI.”

In American Guaranty Corporation, the Commission appealed from the order denying its motion under Section 328.45 While the

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S N.D. Ohio, No. B-64-5617.
39 379 U.S. at 618.
337 F.2d 907 (C.A. 5, 1964). See also 29th Annual Report, p. 96.

W.D. X.Y., No. Bk-63-1954. * 30th Annual Report, pp. 107–108. * S.E.C. v. Canandaigua Enterprises Corp., 329 F. 2d 14 (C.A. 2, 1964). * D. R.I., No. 63B17. For previous report see 29th Annual Report, pp. 95-96. 45 221 F. Supp. 961 (D. R.I., 1963).

appeal was pending, the Commission filed a motion to remand the case to the district court for further consideration in the light of the Supreme Court's decision in American Trailer Rentals and the substantial debt reduction during the pendency of the appeal. The Commission's motion was granted,46 the district court heard oral argument, and the case was pending for decision at the end of the fiscal year.

In Strouse, Inc.,47 the Commission moved under Section 328 to dismiss the Chapter XI petition, but from subsequent developments it appeared that the motion was no longer appropriate and, by leave of court, the Commission withdrew its motion. In United Star Companies, Inc., 48 reported previously, 49 the court of appeals granted the Commission's unopposed motion for an order remanding the case to the district court with a direction to vacate as moot the district court's order denying the Commission's Section 328 motion to dismiss the debtor's Chapter XI petition. The motion for a remand was predicated on the ground that during the pendency of the Commission's appeal the debtor was adjudicated a bankrupt.

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* S.E.C. v. Burton, 342 F.2d 782 (C.A. 1, 1965).

E.D. Pa., No. 28310.
M.D. Fla., No. 63-4-Bk-T.

29th Annual Report, p. 97.
50 S.E.C. v. United Star Companies, Inc., C.A. 5, No. 20577.

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PART VII

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939

The Trust Indenture Act of 1939 requires that bonds, notes, debentures and similar securities publicly offered for sale, except as specifically exempted by the Act, be issued under an indenture which meets the requirements of the Act and has been duly qualified with the Commission. The Act requires that indentures to be qualified include specified provisions which provide means by which the rights of holders of securities issued under such indentures may be protected and enforced. These provisions relate to designated standards of eligibility and qualification of the corporate trustee to provide reasonable financial responsibility and to minimize conflicting interests. The Act outlaws exculpatory provisions formerly used to eliminate all liability of the indenture trustee and imposes on the trustee, after default, the duty to use the same degree of care and skill in the exercise of the rights and powers vested in it by the indenture as a prudent man would use in the conduct of his own affairs.

The provisions of the Trust Indenture Act are closely integrated with the requirements of the Securities Act. Registration pursuant to the Securities Act of securities to be issued under a trust indenture subject to the Trust Indenture Act is not permitted to become effective unless the indenture conforms to the requirements of the latter Act, and necessary information as to the trustee and the indenture must be contained in the registration statement. In the case of securities issued in exchange for other securities of the same issuer and securities issued under a plan approved by a court or other proper authority which, although exempted from the registration requirements of the Securities Act, are not exempted from the requirements of the Trust Indenture Act, the obligor must file an application for the qualification of the indenture, including a statement of the required information concerning the eligibility and qualification of the trustee. Indentures filed under the Trust Indenture Act during the fiscal year

ended June 30, 1965

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REVISION OF RULES, REGULATIONS AND FORMS Proposed Rule 7a-9

Public comments were invited during the fiscal year on a proposed new rule, to be designated Rule 7a-9, under the Trust Indenture Act. The new rule would provide for the filing with an application for the qualification of an indenture under the Act, or as an amendment to such an application which has not become effective, of an amendment which would delay the effectiveness of the application until a further amendment superseding the delaying amendment is filed, or until the Commission accelerates the effective date upon request of the obligor. Applications for qualification of an indenture are required to be filed in those cases, not otherwise exempt, where the securities to be issued under the indenture are not required to be registered under the Securities Act of 1933. Rule 473 under the Securities Act makes similar provision for the filing of delaying amendments to registration statements under that Act.

This matter was pending at the close of the fiscal year. Proposed Amendments to Forms T-1 and T-2

During the fiscal year, the Commission invited public comments on proposed amendments to Forms T-1 and T-2 under the Trust Indenture Act. Form T-1 is prescribed for statements of eligibility and qualification of corporations designated to act as trustees under indentures qualified under the Act. Form T-2 is prescribed for statements of eligibility and qualification of individuals designated to act as trustees under such indentures. The proposed amendments would clarify and simplify the forms in certain respects, would delete certain required information deemed not essential to a determination of the eligibility and qualifications of the trustee, would require certain additional information deemed significant in such determination, and would bring the forms in line with the format of the Commission's more recently adopted forms under other acts.

1 Trust Indenture Act Release No. 222 (June 10, 1965).
2 Trust Indenture Act Release Nos. 222 and 223 (June 10, 1965).

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