such & ishe may and equitably among security holders rening of Section 11 (b) (2).

TET PLAN

the Jacksoorile company under Section 11 (e) fe in the common stock, and proceeds on Hove Dat ze ecterprise belongs to and should be conPlaza de la mary's creditors. Under the plan it is proposed o be organized under the laws of the State of Naad Vissenville Gas Corporation." The new corKEY £ the assets of the present company and Lofts abilities except the presently outstanding org bends bocce debentures, and income notes. In con122 1828 sequired, the new corporation would issue APORAL DENy all of its securities, which would consist of Sono le poste pal amount of 5% first mortgage bonds, and the bal

e via as amended to and including May 7, 1942, the stock Je new corporation was to consist of 36,448 shares with ate of $8 per share. All of the new bonds and 34,900 shares aten of de zew stock were to be distributed to the first mort146 Vukicers of the present company, at the rate of $500 prinuroute of rew bonds and 10 shares of new stock for each $1,000

amount of old first mortgage bonds. The holders of such YOGA TOUR 18 Meive cash in the amount of $12.50 for each $1,000 « Deepak &mount of eld bonds held by them. The remaining 1,548 pervert) of the new stock were to be distributed to the

detures and income notes at the rate of one share for XAV xenopal amount thereof.

ondent filed May 9, 1942, just 2 days prior to the oral sammen he company proposed a modification of the plan er ala) would cause the new corporation to issue only 34,900 Casa d'ated, all of which would be distributed (along with the new And we referred to above) to the holders of the present first moram dank Under the proposed modification no recognition wong de goes to any claim asserted by the holders of the presently

ventures or notes. This proposed modification was subLaw eyenney on the theory that the record developed in these wow would not justify any participation in the reorganized

gegy by the holders of junior securities, in view of the fact that de eggs amount of the bondholders' claim substantially exceeds Sole of the company's assets. There is a question, however, which

FIT FAR FAR Angeles Lumber Products Co., Ltd., 308 U. S. 106 (1939); Northern Mr. Boyd, 228 U. S. 482.

will be taken up later, as to whether or not some of the company's assets are free of the lien of the bonds and thus subject in part to a claim by unsecured creditors.

Nothing would be distributed to the stockholders of the Jacksonville company under the original plan or the proposed modification. Upon transfer and distribution of all its assets, the company would surrender its charter and be dissolved.

The bonds of the new corporation under the plan would be secured by a first mortgage on all of its property which may be subjected to a first mortgage lien. They would be dated June 1, 1942, to mature June 1, 1967, and to bear interest at the rate of 5% per annum.

Under the terms of the proposed mortgage an annual sinking fund for retirement of the new bonds is provided in the amount of 2 percent of the highest aggregate amount of bonds outstanding, except that in any year in which net income is less than sinking-fund requirements the company need pay into the sinking fund only its total net income for the year, the balance to be cumulative. The new bonds would be redeemable at their principal amount plus accrued interest, without premium. Additional new bonds may not be issued unless net earnings, after deduction of all expenses including taxes and depreciation, equal one and three-quarters times the interest on the bonds thereafter to be outstanding. Additional bonds must also be secured by property additions and may not exceed 60 percent of the amount by which the cost or fair value of such property additions, whichever may be less, exceeds property retirements since June 1, 1942, or credits to reserve for retirements, renewals, and replacements since that date, whichever may be greater. The company must deposit into a fund for renewals and replacements in each year a sum equal to 12 percent of gross revenues, or $85,000 plus 22 percent of net additions after June 1, 1942, whichever may be greater, less actual expenditures for repairs, maintenance renewals and replacements. This deposit may take the form of cash, the delivery of bonds for cancelation, or the certification of new property.

The plan provides for no immediate change in the management of the new company. Its original board of directors would consist of the directors of the present company. Immediately after issuance of twothirds of the new stock, the nomination and election of a permanent board of directors would be in order, the present board having the right to nominate candidates. Prior to the first meeting of the stockholders, other candidates could be nominated by stockholders, one for each 300 shares of stock held by any holder or group of holders. The nominees so named would be listed along with the nominations made by the old board on the proxies sent to all stockholders for their designation of preferences. The plan as modified provides for cumulative voting.

All contracts (including the service contract with Public Service Management Corporation, objected to by some of the debenture holders), except ordinary contracts for supplies and materials, would be terminable by the new board of directors chosen as outlined above.

The company does not propose to solicit the consent of any of its security holders to the plan. American, as the owner of 50 percent of the capital stock of the Jacksonville company, has stated that it approves the plan and will consent to the cancelation of the shares which it owns. The Jacksonville company has requested the Commission, if the plan be approved, to apply immediately to an appropriate United States district court for a decree enforcing and carrying out the terms and provisions of the plan, as contemplated by Section 11 (e) of the Act.

The expenses of the preparation of, hearings on, and consummation. of the plan have been estimated by the company in the amount of $30,000.

THE COMMISSION'S POWER TO APPROVE THE PLAN

Counsel for certain holders of debentures and common stock of the company has raised the question whether this Commission possesses the power to approve a plan such as the one proposed, involving as it does a comprehensive reorganization of an operating utility company. In substance, his argument turns upon the applicability of the requirement in Section 11 (e) of the Act that a plan be approved by the Commission only if found "necessary to effectuate the provisions of subsection (b)," paragraph (2) of which provides, in the last sentence thereof:

Except for the purpose of fairly and equitably distributing voting power among the security holders of such company, nothing in this paragraph shall authorize the Commission to require any change in the corporate structure or existence of any company which is not a holding company, or of any company whose principal business is that of a public utility company.

The argument, in other words, first assumes that no plan under Section 11 (e) can be approved by this Commission if it involves changes in the corporate structure or existence of a company which changes could not be required by this Commission on its own motion under the provisions of Section 11 (b) (2). The argument then assumes that we could not require a reorganization like the one proposed here, in the case of an operating public utility company, in view of the provisions of the sentence quoted above.

For the purpose of argument only, we will accept the assumption that we cannot approve a plan under Section 11 (e) which provides for action that could not be required by us on our own motion under the provisions of Section 11 (b) (2). The important question, then, is the proper interpretation of the language of Section 11 (b) (2).

The last sentence of Section 11 (b) (2), quoted above, while phrased as a limitation on our power, clearly implies the existence of an affirmative power. To say that we may not require a change in a specified company's corporate structure or existence "except for the purpose of fairly and equitably distributing voting power" must mean, by necessary implication, that we may require such change if it is for that purpose. Thus, where voting power in an operating utility company is unfairly distributed among its security holders, the last sentence of Section 11 (b) (2) (even without reference to other provisions of the section or the Act as a whole) must be taken to indicate that we have the power to effect changes in such company's corporate structure or existence for the purpose of curing such unfair distribution.

But statutory interpretation need not rest upon a consideration of an isolated provision of a single subsection. The true meaning and intent of the provision in question should be gathered from the policies and objectives of the Act as a whole, and from such other materials as may throw light on the legislative intent. Its function within the framework of the Act becomes evident upon analysis.

The first sentence of Section 11 (b) (2) contains the general grant of power, indeed makes it the duty of this Commission, to require "each registered holding company, and each subsidiary company thereof," to take such steps as we find "necessary to ensure that the corporate structure or continued existence of any company in the holding company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding company system." This sentence, without more, would authorize us to make changes in the corporate structure or existence of an operating utility for the purpose of eliminating inequities that existed elsewhere in the holding company system, though there might be no inequity in the distribution of the voting power in the company itself. By the last sentence of Section 11 (b) (2), we are forbidden to do that; we can require such change only if the inequty exists among security holders of the utility company itself. The sentence in question serves an additional function, namely, to limit our powers with respect to requiring changes in an operating company's structure for the purpose of eliminating "undue or unnecessary" complexities therein. Under the last sentence of Section 11 (b) (2) we cannot require such changes unless such complexities are responsible for an unfair or inequitable distribution of voting power among security holders of such company and such changes are for the purpose of curing such unfair or inequitable distribution of voting power.

*United States v. American Trucking Association, 310 U. S. 534; United States v. Dickerson, 310 U. S. 554.

Similarly, the second sentence of the section (the "great-grandfather clause") is of broad scope, applying to situations in the holding company system as a whole. In general it directs us to rectify any situation where more than two tiers of holding companies are superimposed over a subsidiary,' and standing by itself, would authorize us to require the elimination of any company in the pyramid-whether such company be an operating utility or one of the holding companies. But the last sentence modifies that power. The pyramid might wellin fact would be almost sure to-result in an unfair distribution of voting power in the system. That would ordinarily be attributable to the holding company superstructure. Unless unfairness is attributable to the operating utility itself, in the distribution of voting power among its own security holders, we must not require any change in its corporate structure or existence.

In other words, the third sentence of Section 11 (b) (2) makes it clear that in general the problem of distribution of voting power fairly and equitably in the holding company system should be solved by requiring action on the part of the holding companies in the system rather than the operating utilities, unless there is an unfair or inequitable distribution of voting power among the security holders of the operating companies themselves.

The legislative history clearly supports this interpretation. The last sentence of Section 11 (b) (2) was inserted in conference as a relaxation of the Senate provision corresponding to what is now the first sentence of Section 11 (b) (2) and was thus explained in the conference report: 8

... The substitute contains another relaxation from the Senate provision in that it provides that the Commission may not require any change in the corporate structure or existence of any company which is not a holding company or of any company whose principal business is that of a public utility company, except where such action is for the purpose of fairly and equitably distributing voting power among the security holders of such company. [Emphasis supplied.]

Plainly it was not intended, as was suggested by counsel for certain debenture holders, that the Commission's powers should be restricted to the mere transfer of voting rights from one class of securities to another. Such an interpretation would give no effect to the excepting clause contained in the prohibition against "any change in the corporate structure or existence of" operating companies. It is plain that our

The provision reads as follows:

In carrying out the provisions of this paragraph the Commission shall require each registered holding company (and any company in the same holding company system with such holding company) to take such action as the Commission shall find necessary in order that such holding company shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company.

H. R. Report No. 1903, 74th Cong., 1st sess., at page 70.