Mr. KENNEY. How will the Commission function where these agreements or voluntary adjustments are submitted to the Commission? The Commission would make findings?

ADVISORY REPORTS TO COURTS

Commissioner DOUGLAS. I am not sure they would be technical findings, although that word "findings" is used in section 13 (d) on page 44.

Mr. KENNEY. Unless the plan was approved by the Commission, it could not be put through the courts, even though the courts might approve it?

Commissioner DOUGLAS. As I read the Lea bill, it does not, and I think should not, entail a prior approval by the Commission before the court acts; but it merely provides for the submission of an advisory report by the Commission before the court acts.

Mr. KENNEY. In other words, the courts would have to read your findings and agree with them?

Commissioner DOUGLAS. No; the courts could take the advisory report and throw it in the ash can, so to speak, or could do anything it wanted to with it. It would be merely an advisory report.

Mr. KENNEY. So that whatever you might do would not be really binding?

Commissioner DOUGLAS. It would not be binding at all, as I read it. At least, in my opinion it should not be binding, because I think that we have not arrived at the stage of necessity whereby the reorganization power should be taken away from the courts. Rather I think that the reorganization power should be left in the courts, or left exclusively in the courts, in their enforcement of the statutes.

Mr. KENNEY. Under this bill they would be required to submit the plan to you before it went into the courts?

Commissioner DOUGLAS. In the case of reorganization in the Federal courts, before the court finally approved the plan it would have to submit that plan to the Commission for an advisory report, if the indebtedness of the company being reorganized equaled or exceeded $5,000,000. Now, that amount is $5,000,000. I do not deem that there is any magic in that figure. As I read the Lea bill, it is merely suggestive that at some point in the size of the companies you arrive at a relatively great degree of complexity and financial involvement. As a practical matter reorganizations of smaller companies, with smaller capital structures, with the creditors' interests perhaps more localized are wholly manageable without any so-called expert administrative assistance. But in some of these far-flung industrial enterprises, with large capital structures, and what not, I have been given reason to believe that at least many courts would welcome such aid and assistance.

Mr. BULWINKLE. You say that the $5,000,000 is just a suggestion. What is your suggestion?

Commissioner DOUGLAS. I think that probably $5,000,000 comes close to the right figure. I would like, however, to express at this time a wholly tentative view for this reason: We at the Commission are hoping to complete some time this week an analysis of all reorganizations commenced in the Federal courts last year, and we would be very happy, Mr. Chairman, to submit to this committee the results

of that analysis. It will show the volume of cases above $10,000,000, below $10,000,000, above $250,000, below $250,000, and so on. It will perhaps not only give the committee a better idea as to what the volume of work of the Commission would be, but also perhaps be suggestive of the type of case in which an administrative agency should participate if it is the judgment of the committee that they should participate in any. Those schedules will show the type of company, the type of capital structure, the degree of complexity, and so on. The CHAIRMAN. We will be glad to have that report.

Mr. COLE. Mr. Chairman

The CHAIRMAN. Mr. Cole.

Mr. COLE. Since the passage of 77B, of the Bankruptcy Act, and the great amount of work which that law has brought to the district courts, has not the practice been rather common for the judges in the district courts, after hearing both sides, especially the experts on a very complicated reorganization, to employ, with the consent of both parties, an impartial expert to advise the court, such expert to be selected by the court?

Commissioner DOUGLAS. That has been done in situations I know of.

Mr. COLE. And that has been a rather common practice, has it not?

Commissioner DOUGLAS. That has, I think, been rather common in some places; yes.

Mr. COLE. This bill, as I understand, would be an advantage to a judge trying a very technical reorganization case involving values and patent rights and many other highly complicated matters, beyond the ordinary field of judicial learning, to have available through intervention in the proceedings the expert help of the Securities and Exchange Commission.

Commissioner DOUGLAS. That is right, sir.

I had not mentioned, to date, the second phase of this administrative participation in the proceedings.

The first phase was making an advisory report on plans where the debtor had a scheduled indebtedness exceeding $5,000,000.

INTERVENTION BY SECURITIES AND EXCHANGE COMMISSION

The second, set forth in the Lea bill, section 14, gives the Commission the power to intervene and become a party in interest in those proceedings. As a party in interest, it could express its views from time to time on the merits of any matter before the court, but it would not share with the court the responsibility and power that the court has nor would it be imposed upon the court as a super or dominating agency. It would merely come in as an intervenor as an ordinary party in interest.

Mr. COLE. We could not give that authority if we wanted to do so, could we?

Commissioner DOUGLAS. I am not sure. At least, we hope that you do not. If you decide to give any power, we hope that you do not give that type of power.

Mr. COLE. You do not think we could legally go that far?

Commissioner DOUGLAS. That is an involved matter. That goes back to the question of constitutional interpretation; of how the

bankruptcy statutes made pursuant to the Constitution of the United States may be administered. I think as a matter of history, although I would not like to be pressed on this, I think as a matter of history, there would be no reason why the Congress could not set up administrative agencies rather than courts to administer the bankruptcy statutes. It has always been done through the courts, by the courts, and I see no reason why it should not continue to be done that way. Mr. COLE. I am talking about intervention in court proceedings. Commissioner DOUGLAS. If it should happen, I for one would deplore it, at least at this stage. I think that the courts, overworked as they have been are nevertheless competent and adequate to handle the task. I think what they have needed in this reorganization period has been, first, some administrative adjunct or arm of the courts that could render disinterested, expert service and advice. Secondly, I think that the courts have needed more specific legislative standards under which to operate. I think that those two factors point not towards taking powers away from the court, but towards putting the courts into a better position to operate effectively.

Mr. MARTIN. Mr. Chairman

The CHAIRMAN. Mr. Martin.

Mr. MARTIN. May I ask a question there?
Commissioner DOUGLAS. Yes.

Mr. MARTIN. I want to know if this intervention here is not something along the line contemplated in the intervening authority given the Attorney General of the United States in an act now pending before Congress-I do not know whether it is along the same line of intervening in the United States courts, where the constitutionality of an act of Congress is involved. It would be something along that line, would it not?

Commissioner DOUGLAS. Those two ideas were not at all related in our deliberations on the needed reforms in the bankruptcy courts. What was felt was that the courts, as I have said, in many situations, really needed and I feel confident that many at least would welcome, some administrative help. Further, from the point of view of investors as distinguished from the point of view of the courts, there were many cases where perhaps just due to incompetency or perhaps due to other reasons, there were oppressive practices prevailing. The courts too far removed from the situation were not apprised of them; but it is imperative that some action should be taken to prevent such practices.

Now, an intervenor in that case, such as the Commission, could perform that function for investors by calling such matters to the attention of the court.

Mr. WOLVERTON. Mr. Chairman

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. The explanation that you have given as to the purpose of the act, so far as it relates to the proceedings of the courts would seem very satisfactory to me if it is limited entirely to the position of an adviser or intervenor.

I have had in mind, however, that there may be provisions in the act leading up to the proceeding in the court that may be so restrictive that in the final analysis the court is restricted in what it really has before it to be determined.

Do you consider that the preliminary steps provided for in this bill are of such a character as to restrict or prevent any proposed plan of

reorganization in such a way that there would not be an opportunity for the plan to be presented to a court?

Commissioner DOUGLAS. I do not sir. That is to say, there is only one phase of the Lea bill, as I read it, which touches at all the court proceedings and that is the provision for intervention by the Commission. The second provision is for an advisory report.

Mr. WOLVERTON. That is sections 6

Commissioner DOUGLAS. Sections 13 and 14 into which are incorporated, I think, parts of section 6.

Mr. WOLVERTON. Section 6 has reference to it.

Commissioner DOUGLAS. Yes. Now, as I have indicated, I do not believe that those sections do usurp the power of the courts. If there is any question of ambiguity in those sections, I think they should be clarified to meet that objective.

Now, as to the protective committees, there is nothing in my judgment which touches at all the function of the courts. That is, a section 77-B proceeding goes on without any let or hindrance from this standpoint. All that this bill requires is that those people who are going out collecting deposits or proxies from security holders represented in that 77-B proceeding must measure up to some minimum standard for fiduciaries. That is the general sense of it.

Mr. WOLVERTON. I am inclined to believe that if the activity of the agency is confined to an advisory capacity for the courts, that it might prove helpful, but if so then why does this bill limit it to cases where $5,000,000 is involved?

In other words, you give advice and you take interest in cases that involve more than $5,000,000; but you do not assume any responsibility for reorganization if the indebtedness is less than $5,000,000.

Commissioner DOUGLAS. Except this, sir, in line 11, page 45.

SEC. 14 (a). The Commission shall have power to intervene in any proceeding. for reorganization

Mr. WOLVERTON. I intended to call your attention to that provision and ask you if the intention was to give general jurisdiction and if so why did you limit it to $5,000,000 in one section and in another section give broad powers so you could intervene in any case?

Commissioner DOUGLAS. Well, that was for this reason: The $5,000,000 is descriptive of the type of cases where, under the Lea bill, the Commission would have to render an advisory report to the court. Now, if the Commission is going to render an advisory report to the court, the Lea bill says that the Commission shall intervene and become a party.

Mr. WOLVERTON. Then with reference to the $5,000,000 cases, it is compulsory upon the Commission to make a report; but it is discretionary as to anything below $5,000,000.

Commissioner DOUGLAS. As below the $5,000,000 then the Commission has discretion. That is it; and certainly in my opinion it would not be desirable for the Commission to be intervening in every single little 77-B case throughout the country. Some of them are merely "hot dog" stands. Some of them involve the run of Main Street businesses, haberdasheries, groceries and what not, a wholly manageable situation by the local creditors, for the most part, and by a judge.

Mr. WOLVERTON. Well, that seems to be the answer, that it is compulsory when the indebtedness is $5,000,000 or above and it is discretionary in the cases that are less than that.

Commissioner DOUGLAS. But, I would like to make it perfectly clear to the committee, Mr. Chairman, that the $5,000,000 as I view it is merely suggestive of the line that ought to be drawn somewhere; it might be $10,000,000, or it might be $2,500,000. That would be something on which we will submit a report.

SUPERVISION OF DECLARANTS

Mr. KENNEY. What is the effect of subdivision (b) of section 14? You act there as an arbiter only when asked to function?

Commissioner DOUGLAS. Yes, sir; that is a provision which, as I read it, merely gives to the Commission the power, in the sense of capacity, to agree, if the committee so desires, to sit in review on the reasonableness of or determine its fees and expenses.

Mr. KENNEY. Well, you use the words "supervision over declarants" before the beginning of section 14.

Now, that supervision is only granted to you when the declarant is willing to refer the matter to you?

Commissioner DOUGLAS. That is the intention and design, as I read it. If there is a chance that it does not mean that, I think that it should be changed so that it would clearly mean that. That is, just speaking for myself, if that were the law, I think that the Commission should exercise that power sparingly.

The situation envisaged was this, to provide that these deposit agreements that the committees get up should have worked into them specific machinery whereby a designated person, perhaps a judge; perhaps the president of the Bar Association; perhaps the president of the Chamber of Commerce; or what not; is designated as the person to whom reference is made as to the propriety of fees and expenses and other similar things arising under the deposit agreement. That is a system, by the way, that is described in some detail in our real estate report where we set forth the very significant experiment which Judge Mack of the United States District Court for the Southern District of New York inaugurated back in 1926 or 1927 in connection with the G. L. Miller bankruptcy. That is described at page 239 of our real-estate report.

Judge Mack in that situation had placed in the deposit agreements the name of the person who would pass judgment on the fairness of fees and expenses. The agreement took that away from the committee and provided for independent review.

Subsection (b) at the top of page 46 visualizes, as I read it, the kind of a system inaugurated by Judge Mack.

Mr. LEA. I presume that you will not be able to finish your statement this morning.

Commissioner DOUGLAS. I have, as a result, I believe, of the various questions asked regarding the matter of the advisory reports, and the interventions, covered substantially all of the general statement that I was going to make about the second phase of the Lea bill, namely, participation by an administrative agency.

Mr. LEA. So, it will be your purpose when you continue your testimony to complete your further general statement.

Commissioner DOUGLAS. I do not think any further general statement would be necessary.

Mr. LEA. Can you be here tomorrow morning?