Mr. DUFFY. There was a reference made this morning to the Canadian practice being similar to what is contemplated in this bill. Are you familiar with the Canadian practice? Mr. WEINSTEIN. I read the Canadian bill about 3 years ago, and I hesitate to say very definitely what it does provide. It is my recollection that they have a sort of dual system. There is a creditor control; and temporarily, I think, an official takes charge as soon as a proceeding is filed. But the creditors' control is not disturbed. Mr. CHANDLER. Mr. Weinstein, you are familiar, I suppose, with H. R. 10380, which represents a great deal of work on the part of the National Bankruptcy Conference, and in which the reorganizations are placed back in their original position in the Bankruptcy Act? Mr. WEINSTEIN. Yes. Mr. CHANDLER. Under section 12. Would you be willing to undertake to study that section 12 in this pending bill, and prepare some slight amendment which would help us to work out the problems which Mr. Sabath has presented? Mr. WEINSTEIN. I would be very glad to if you designate Mr. Montgomery to help me do it. Mr. MONTGOMERY. I accept the designation. Mr. WEINSTEIN. Thank you. Mr. CHANDLER. All right. Mr. WEINSTEIN. I thank the committee very much. (In accordance with the foregoing understanding, Mr. Jacob I. Weinstein submitted to the Judiciary Committee the following suggested substitute for H. R. 10634.) SECTION 77B Subject: Amending subdivision (b) by adding provisions for control and supervision of protective committees, etc. (Substitute for Sabath bill, H. R. 10634) At the beginning of subdivision (b) after (b) insert "1". "For all purposes of this section any creditor may act in person, by an attorney at law, or by a duly authorized agent or committee: Provided, That the judge shall scrutinize and may disregard any limitations or provisions of any depositary agreements, trust indentures, committee or other authorizations affecting any creditor acting under this section and may enforce an accounting thereunder or restrain the exercise of any power which he finds to be unfair or not consistent with public policy and may limit any claims filed by such committee member or agent, to the actual consideration paid therefor." At the end of present subdivision (b) insert the following provisions : 2. During the pendency of proceedings under this section and in connection with or in any matter relating thereto, it shall be unlawful for any person, or group of persons, acting or purporting or proposing to act as a committee, directly or indirectly or in any form or guise (a) to solicit, or permit the use of his or its name to solicit, from any creditor or stockholder of a debtor by or against whom such proceedings have been instituted, any proxies, authorizations, acceptances, consents, or dissents, or (b) to solicit, or permit the use of his or its name to solicit, the deposit by any creditor or stockholder of his claim against or interest in such debtor, or any instrument evidencing the same, under any agreement authorizing a person or group of persons other than the depositor to represent such depositor in such proceedings or in any matters relating thereto, including any matters relating to the deposited securities, or (c) to use, employ, or act under and pursuant to, any proxies, authorizations, acceptances, consents, dissents, or deposit agreements, which have been solicited or obtained prior to the institution of such proceedings, unless the person or committee proposing so to solicit, or to use, employ, or act under and pursuant to, such proxies, authorizations, acceptances, consents, dissents, or deposit agreements, shall file with the judge his or its petition for leave so to do. 3. Such petition shall be signed and sworn to by the petitioner or by a duly authorized agent having knowledge of the matters therein set forth, or, where the petitioner is a committee, by the chairman and secretary of such committee, and shall state (a) the names and addresses of the petitioner, its members if a committee, and his or its counsel; (b) the affiliations and connections, direct or indirect, of the petitioner, each of its members if a committee, and his or its counsel, with the debtor, with the issuer, trustee of the issue, underwriter and guarantor of the securities, with the reorganization managers or other like bodies, and with any person or group of persons and each of its members, acting or purporting or proposing to act in connection with proxies, authorizations, acceptances, consents, dissents, or deposit agreements relating to the same or any other class of securities; (c) the names of all persons at whose instance, direct or indirect, the petitioner agreed to act, or, if the petitioner is a committee, the facts and circumstances in connection with the formation of such committee, and the names of all persons at whose instance, direct or indirect, such committee was formed and each member thereof agreed to act; (d) the amount and a brief description of securities of the debtor owned by the petitioner or, if the petitioner is a committee, by each member of such committee, beginning at the time when the petitioner began to act or the committee was formed, together with the dates of acquisition of such securities and the amounts paid therefor; (e) the amount and a brief description of securities represented by the petitioner; (f) the maximum amount or percentage of all charges for fees and expenses which the petitioner is authorized or proposes to charge, and to whom such fees and expenses have been or are to be paid; (g) briefly, the nature of the proxy, authorization, acceptance, consent, dissent, or deposit agreement to be solicited, used, employed or acted upon; and (h) such other matters as the Supreme Court may from time to time by general order prescribe. The petitioner shall attach to his or its petition true and correct copies of all proxies, authorizations, acceptances, consents, dissents, or deposit agreements sought to be solicited, used, employed, or acted upon, together with all soliciting and explanatory literature used or proposed to be used in connection therewith; and shall also attach to such petition a full, detailed and itemized statement signed and sworn to by the petitioner or, if the petitioner is a committee, by its chairman and secretary, disclosing all moneys received and disbursed and all liabilities incurred by the petitioner in connection with and pursuant to any proxies, authorizations, acceptances, consents, dissents, or deposit agreements, and in the solicitation thereof. 4. After hearing, and upon consideration of such petition, the judge shall enter an order authorizing such solicitation, use employment or action if satisfied that (a) the petitioner, or, if the petitioner is a committee, each of its members, and his or its counsel, are not or have not been directly or indirectly affiliated or connected, except as mere owners or holders of securities of the debtor, with the debtor or with the issuer, trustee of the issue, underwriter or guarantor of the securities; (b) there is no conflict of interest between the petitioner or, if the petitioner is a committee, its members and the creditors or stockholders for whom such petitioner is acting or proposes to act; (c) the terms and conditions upon which such solicitation has been made, or upon which such solicitation, use, employment, or action is proposed, are fair and reasonable; (d) the provisions or limitations of the proxies, authorizations, acceptances, consents, dissents, and deposit agreements do not deny or place undue restrictions upon the right of such creditors or stockholders to withdraw, and do not give to the petitioner the power to hypothecate the securities deposited or to be deposited, for any purpose other than that of paying actual, necessary, and reasonable fees and expenses of the petitioner, including those of his or its counsel or any person performing services for the petitioner, and, in view of the par value of the securities, deposited or to be deposited, do not entitle the petitioner to an unreasonable amount for the payment of its fees and expenses, including those of his or its counsel or any person performing services for the petitioner, and do not prejudice the formulation and acceptance of a fair and equitable plan of reorganization. 5. The judge (a) may require from any depositaries, trustees under trust indentures, depositary committees, or other authorized persons reports of their activities, and enforce an accounting from them, either on its own motion or at the instance of any party in interest; (b) may restrain the exercise of any power granted to depositaries, trustees under trust indentures, committees, or other authorized persons, which the judge finds to be unfair, inequitable, and not consistent with public policy; and (c) may limit, to the extent of the actual consideration paid, any claims or interests acquired by a person or group of persons, while acting or purporting or proposing to act for creditors or stockholders of the debtor. 6. The judge may limit the fees and expenses payable to any person or persons under or in connection with any proxies, authorizations, acceptances, consents, dissents, or deposit agreements, or in the solicitation thereof, to an amount which the judge may deem fair and equitable; and he may surcharge any depositary, committee, or other authorized person with the amount of any fees or expenses paid by any of them which in the opinion of the judge is unfair, unreasonable, or improper. 7. Appeals from orders made pursuant to this subdivision may be taken to the circuit court of appeals independently of other appeals in the proceeding, and shall be heard summarily. 8. Nothing contained in this subdivision shall be applicable to, or be construed to prohibit, any creditor or stockholder from acting in his own interest, and not for the interest of any other, through an attorney at law or authorized agent, when not part of an organized effort, or to prohibit groups of mutual institutions from acting together for their own interests, and not for others, through representatives or otherwise, or from authorizing representatives of such groups to act for them in respect to any of the foregoing matters. 9. Any person who willfully commits any act hereinabove declared to be unlawful, or who knowingly and fraudulently makes, or causes to be made, any statement in any petition, accounting, report, or document required to be filed hereunder, which statement is false or misleading with respect to any material fact, shall be guilty of a misdemeanor, and on conviction in any United States court having jurisdiction, shall be punished by a fine of not more than $5,000, or by imprisonment for not more than 3 years, or by both, in the discretion of the court. SECTION 77B Amendment to subdivision c (11) In subdivision c (11), after "one of the referees in bankruptcy", insert: “for determination, subject always to a review by the judge, or for investigation, or." As recast, this clause would read as follows: "and (11) may refer any matters to a special master, who may be one of the referees in bankruptcy, for determination, subject always to a review by the judge, or for investigation, or for consideration and report, either generally or upon specied issues, and allow such master a reasonable compensation and reimbursement for his service and actual and necessary expenses." Amendment to subdivision b (10) In subdivision b (10), after the definition of "claims", insert: "The term 'equity receivership' includes a proceeding to foreclose a lien on property; and a 'final decree' in such a proceeding means a decree finally confirming a sale of such property." Mr. BENNETT. I just briefly have a few other witnesses. The next one will be Mr. Henry C. Shull. Mr. CHANDLER. We will be glad to hear from Mr. Shull. STATEMENT OF HENRY C. SHULL, SIOUX CITY, IOWA, CHAIRMAN OF THE AMERICAN BAR ASSOCIATION COMMITTEE ON BANKRUPTCY Mr. SHULL. Mr. Chairman and gentlemen of the committee, my name is Henry C. Shull. I am from Sioux City, Iowa. I am chairman of the bankruptcy committee of the American Bar Association for this year. This committee is composed of five members, appointed by the president of the association, resident in various parts of the country. Our function, Mr. Chairman, is to report on and follow bankruptcy legislation and to report and recommend on it to the American Bar Association. The committee is not speaking here today, let it be understood, on behalf of the American Bar Association. It is speaking only as a committee, which committee, in carrying out its functions, has been following out the investigation of Judge Sabath's committee very closely and with a great deal of interest. It is the purpose of our committee, Mr. Chairman, to champion no particular interest. We endeavor to represent the bar of the country. Within the American bar there are all kinds of ideas, and we are endeavoring to assist in this legislation in any way that we can and report it back to the American Bar Association. Our committee has always been, at least during the past few years, very conservative about accepting amendments to the act. We have written into our report the fact that, and our belief that, the present act, as passed in 1898, and as subsequently amended, if properly and wisely administered, is a satisfactory law. We have on a number of occasions assisted and helped in amendments which will go to the administration of the act and its simplicity, and giving the referees more power and the courts more power. We opposed very violently as a committee the former Hastings bill, with which I think Mr. Michener was also connected, which, Mr. Chairman, arose after the investigation by the Attorney General under the Hoover administration, which endeavored to set up what we thought to be a bureaucracy engrafted upon the bankruptcy administration of the country. It divided the country into 12 zones. It appointed a host of administrators and inspectors and official receivers; and our committee felt that it was not proper to engraft that sort of thing onto the bankruptcy administration courts of the country. Happily that was not enacted into law. This proposal has much of the same ring. Of course, it is confined only to 74, as I understand it, and to 77 (b). Yet it might easily be like, and it looks a good deal like in many respects, the old Hastings proposal. We think that Judge Sabath's committee has done a very fine piece of work. But, assuming for the sake of the argument many of the things that that committee has found, our committee, which has discussed this matter and his bill, do not feel, Mr. Chairman, with all due respect to his efforts and his proposal, that this is the proper way to reach it. We believe, as has been said before, that if 77 (b) does not contain broad enough equity powers for the United States district courts to handle protective committees and agreements, if it does not-and I am not convinced that it does not, because in some cases the courts have taken jurisdiction over those matters-but, if it does not, isn't it better to by amendment to 77 (b) endeavor to arrange that rather than to set up upon the country a corps of employees-attorneys, special conservators, and what not-running all through the districts, and to charge on the debtor assets not only further confusion, but further expense? The bill provides for the appropriation of $2,000,000 from the general revenue for the first 2 years of its operation, as I understand it, following which it is assumed that the charges which are made against the assets will liquidate its operation. I do not know whether it has been cleared up in the committee's mind or not-and I think I state it correctly; it was incorrectly stated this morning-that the Conservator is not limited to $7,500 a year, Mr. Chairman; that the court sets this fee. The court allows him mileage under this bill. $7,500 annually is allowed to the special masters which may be appointed by the circuit courts of appeals. But the Conservator receives his fees from the courts. As the bill is written--and I believe it was Representative Duffy who asked if he was an agent of the court. He is the court, I am afraid, almost under this bill. His powers are extremely broad. He must approve almost every stage of the proceeding, not only the protective agreements; not only the personnel of the protective committees, but every plan must be presented to him. Every stage of the proceeding is in his hands. By one section he is made a party to the proceeding. Apparently, whether he receives notice or not, he is a party. I presume that that presupposes his right of appeal directly to the circuit court of appeals and the Supreme Court of the United States. It seems to us and our committee-and we present it with all due respect to Judge Sabath's committee, which has done an elegant piece of work that this can be reached without setting up on the country a further bureaucracy, not only intervening in the present bankruptcy administration, but almost usurping it, which has proven bad wherever it has been tried. There is great confusion now with the Interstate Commerce Commission, which is a commission with half a century of experience. There is confusion now as to where their jurisdiction of railroad receivership commences and where it ends. I think the plan in 77 is what Judge Sabath and his committee have attempted to write into 77 (b), although he has gone so much further. The Interstate Commerce Commission is not the custodian, is not the receiver or trustee of every piece of property. They simply advise. But with over half a century, if you please, of work, with all of their statistics, they have at hand all of this almost immediately. There is not a railroad Mr. CHANDLER. Cumulative knowledge. Mr. SHULL. Yes; cumulative knowledge. situation with which they are not familiar. up a very expensive and very burdensome duplication of effort. |