ticular issue met the definition of a successful marketing, indicates that 84.1 percent of the combined principal amount of all the refundable issues were so sold, as compared with 81.8 percent for the non-refundable issues.31 While the statistics for the total period from May 14, 1957, to June 30, 1965, developed in respect of the two groups of bond issues support the Commission's policy of requiring free refundability of utility bond issues subject to the Act, the Commission's staff will continue its studies of refundability provisions, particularly in light of the inconsistent marketing results in fiscal year 1965.

OTHER MATTERS

The Southern Company and its four electric utility subsidiary companies, including Alabama Power Company, filed an applicationdeclaration with the Commission, pursuant to Section 6(b), proposing, among other things, the issue and sale to Southern of $14 million aggregate par value of common stock by Alabama Power. That company proposed to use these and other funds for the construction of electric facilities within the State of Alabama where it was organized and carries on its public-utility business. The Alabama Electric Cooperative, Inc. requested leave to intervene and a hearing on the asserted ground that certain of the proposed electric facilities would duplicate the Cooperative's facilities, would invade the service area of the Cooperative, and were consequently unnecessary and not in the public interest or the interest of investors or consumers. On June 1, 1965, the Commission issued its Findings, Opinion and Order, authorizing Alabama Power's proposed financing and denying the Cooperative's petition. The Commission found, among other things, that the proposed financing had been expressly approved by the Alabama Public Service Commission (before which the Cooperative had also appeared in opposition to the company's proposals) and that the issues raised and contentions advanced by the Cooperative were exclusively within the jurisdiction of the State authorities. The Cooperative filed a petition for review in the Court of Appeals for the District of Columbia Circuit.33

31

32

During fiscal year 1965, the applicable percentages were 65.4 percent for the refundables and 78.3 percent for the nonrefundables.

32

33

Holding Company Act Release No. 15252.

The Alabama Electric Cooperative, Inc. v. S.E.C., No. 19403. In June 1965, another application was filed with the Commission by Alabama Power regarding the proposed public sale of bonds and preferred stock, to finance construction. On July 7, 1965, the Cooperative filed a petition for leave to intervene and for a hearing for the same reasons it had urged in the prior proceeding; and on July 29, 1965, the Commission issued an order authorizing the proposed transactions and denying the petition for the reasons set forth in its prior decision. Holding Company Act Release No. 15287. The Cooperative has appealed to the Court of Appeals for the Fifth Circuit. Alabama Electric Cooperative, Inc., v. S.E.C., No. 22858.

As reported previously, on March 3, 1964, the Commission issued an interim ruling that Pacific Northwest Power Company would not become an electric utility company as defined in Section 2(a)(3) at least prior to the time at which the grant of a license by the Federal Power Commission for the construction and operation of a hydroelectric plant had become final, either by the expiration of the appeal period or by a final determination of the appellate courts affirming the grant.35 Three appeals from the grant of the license have been filed in the Court of Appeals for the District of Columbia Circuit, but as of the close of the fiscal year no decision had been rendered.

34 30th Annual Report, pp. 96–97.

85

36

Pacific Northwest Power Company, Holding Company Act Release No. 15026. * United States of America, ex rel. Stewart L. Udall, Secretary of Interior v. F.P.C., No. 18731; State of Washington Department of Conservation v. F.P.C., No. 18729; Washington Public Power Supply System v. F.P.C., No. 18728.

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 U.S. 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 such proceedings. The Commission participates in proceedings under Chapter X in order to provide independent, expert assistance to the courts, the participants, and investors in a highly complex area of corporate law and finance. It pays special attention to the interests of public security holders who may not otherwise be represented effectively.

Where the scheduled indebtedness of a debtor corporation exceeds $3 million, Section 172 of Chapter X requires the judge, before approving any plan of reorganization, to 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 to require the adoption of a plan of reorganization.

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, public security holders are not represented adequately, 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 requests the Commission's participation.

The Commission has lawyers, accountants and financial analysts in its New York, Chicago and San Francisco regional offices who are

engaged actively 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

In fiscal year 1965, the Commission continued to maintain a high level of activity under Chapter X. During the year, the Commission entered its appearance in 17 new proceedings involving companies with aggregate stated assets of $168 million and aggregate indebtedness of approximately $150 million. These proceedings involved the rehabilitation of corporations engaged in various businesses including, among others, heavy manufacturing, real estate and mortgage investments, operation of hospitals and motels, the manufacture of mechanical and electronic components, the manufacture and distribution of chemicals and motor freighting.

During the year the Commission was a party in a total of 104 reorganization proceedings, including the new proceedings. The stated assets of the companies involved in these proceedings totaled approximately $963 million and their indebtedness approximately $899 million. The proceedings were scattered among district courts in 32 states and the District of Columbia, as follows: 15 in New York; 11 in Florida; 9 in California; 6 in Illinois; 5 each in Kentucky and Michigan; 4 each in New Jersey and North Carolina; 3 each in Arizona, Iowa, Nevada, Oklahoma, Texas, Pennsylvania and Washington; 2 each in Colorado, Kansas, Louisiana, Maryland, Montana and Ohio; and 1 each in the District of Columbia, Arkansas, Connecticut, Idaho, Massachusetts, New Mexico, South Dakota, Tennessee, Utah, Wyoming, West Virginia and Virginia. Proceedings involving 15 principal debtor corporations were closed during the year. Thus, at the end of the year the Commission was participating in 89 reorganization proceedings. JURISDICTIONAL, PROCEDURAL AND ADMINISTRATIVE MATTERS In Chapter X proceedings in which it participates, the Commission seeks to have the courts apply the procedural and substantive safeguards to which all parties are entitled. The Commission also attempts to secure judicial uniformity in the construction of Chapter X and the procedures thereunder.

In Muskegon Motor Specialties Co.,1 the debtor was found insolvent, the confirmed plan of reorganization did not accord the stockholders any participation, and the preferred stockholders committee appealed.2

1E.D. Mich., No. 47795.

2 C.A. 6, No. 16,492.

Subsequently, the Commission moved to vacate the order of confirmation on the ground that, because of a substantial increase in earnings since confirmation and other developments, the debtor may be solvent. In view of the pendency of the appeal, the district judge prepared an order vacating the order of confirmation, and this proposed order was presented to the court of appeals as the basis for a motion to remand. In the interim, the purchasers under the plan filed in the district court a motion for rehearing of the Commission's motion to vacate. The court of appeals continued the hearing on the motion to remand, stating that it would grant the motion if the district court denied the motion for rehearing.

Certain stockholders of the debtor appealed from a district court order in Shawano Development Corporation, which adjudicated the debtor a bankrupt and thereby precluded the Chapter X trustee from proceeding with pending suits against former members of management and others. The court of appeals agreed with the Commission's view that a proceeding under Chapter X rather than in bankruptcy is a preferable forum for the prosecution of a debtor's lawsuits where such suits are financed, in part, by the stockholders. However, the court held, inter alia, that the district court did not abuse its discretion in adjudicating the debtor a bankrupt and that appellants had failed to appeal from an earlier order refusing approval of a proposed plan of liquidation which included a provision for the prosecution of these lawsuits.1

In Texas Independent Coffee Organization, the Commission objected to the trustee's petition to cancel all delinquent investment contracts held by the public and to forfeit the installments paid thereon. The Commission urged that the bankruptcy court, as a court of equity, should not countenance forfeitures, especially where, as in this case, there was no assurance that investors would receive in value that for which they had contracted. It was also urged that investors should not be required to make payments, under penalty of forfeiture, on contracts which had been sold in violation of the registration provisions of the Securities Act of 1933. The court agreed with the Commission and denied the trustee's petition.

In Investors Associated, Inc., the debtor contested an involuntary Chapter X petition on the ground that it was not insolvent as alleged in the petition. The debtor had issued and sold over $1 million principal amount of subordinated debentures, $691,000 of which had been exchanged for common stock. The Commission, appearing at the

3D. Wyo., No. 3163 (Bankruptcy).

In the Matter of Shawano Development Corp., C.A. 10, Nos. 7699, 7956.

5 S.D. Tex., No. 65-C-1.

*W.D. Wash., No. 55449-By.

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