having deliberately defaulted on the bonds, and after having abandoned the property, were nevertheless given an interest in the reorganized property, and often retained control.

During reorganization proceedings bonds are bought and sold, in many instances, by speculators who purchased the bonds purely for the purpose of intervening and delaying prompt reorganization. Frequently purchases are made by members of protective committees or their intimates who had "inside information" which had not yet been disclosed to the other security holders, at prices far below the real worth of such bonds, enabling such purchasers to make great profits at the expense of the original investors, who, by reason of lack of authentic information, have become discouraged and parted with their holdings at a great sacrifice.

Large corporations whose subsidiaries owned or leased property subject to bond issues have deliberately permitted these subsidiary companies, in whose name such properties are held or leased, to go into bankruptcy or reorganization proceedings under 77B thus wiping out valuable leaseholds against which bonds have been issued, where properties have been owned, and enabling the parent company to reacquire the property under such proceedings, either directly or through other wholly owned subsidiaries on terms more favorable to the parent company.

Although the Bankruptcy Act expressly limits the fees to be paid under bankruptcy proceedings, both as to amount and to persons entitled thereto, this limitation is not applicable to 77B reorganizations. The provisions of 77B permits the granting of fees to committees, agents, and their attorneys. As a result many groups such as stockholders and bondholders committees and attorneys, each representing a different minority party in interest, have injected themselves into the proceedings, and have all made claims to the court for allowances for services allegedly rendered by them from the bankrupt estate. In many cases large allowances have been made "for services", such allowances far exceeding the value of the claims they represent and services they have rendered to the bankrupt estate. This is due to the gross exaggeration of the claims made by them and the lack of facilities in the Federal courts as presently constituted for investigating the merit of such claims. This provision of 77B is the one, undoubtedly, referred to in the editorial of the New York American, December 26, 1935, which states:

It permits lawyers retained by nobody, bankers, who are themselves responsible for overcapitalizations ending in collapses, and all kinds of selfconstituted and nondescript "committees" to "muscle-in" on distressed properties and, as "preferred creditors", literally to run away with money belonging to somebody else.

However, practices of this kind are not likely to occur with an arm of the court such as the Conservator having the duty of and facilities for investigating such activities and reporting to the court those instances which should materially affect the decision of the court in confirming as fair and equitable, any plan or proposal.

In a comparatively short time the Conservator will have assembled a corps of experts trained in every field of endeavor ready at a moment's notice to assist in the administration of the law and in the reorganization of debtors' estates. Another feature of 77B not

mentioned here will particularly require the service he can renderthat is the provision that in effect eliminated ancillary receiverships by placing exclusive jurisdiction of the debtor and its property wherever located, under one court. This extension of the frontiers of the district court was necessary to carry out the purpose of sections 74 and 77B by keeping under one central authority as an integral structure the estate of the debtor until rehabilitation or reorganization is complete. The Conservator will be enabled to provide the court with any facts which will be necessary or helpful in the proceeding and in the approval of a plan of reorganization, with far greater ease, economy, and completeness than the present expensive methods employed.

The last point I desire to make relates to the question of constitutionality which has been raised. In Hanover National Bank v. Moyses (186 U. S. 181), in 1901, when the constitutionality of the present Bankruptcy Act was challenged, the Supreme Court in a unanimous opinion stated that Congress had practically unlimited powers over the relations between debtors and their creditors. The constitutionality of the Sabath bill cannot be challenged as an unlawful delegation of legislative powers. The Supreme Court, in Field v. Clark (143 U. S. 649), reiterated that the true distinction between a lawful and unlawful delegation:

is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be made.

This bill states the law definitely and delegates no powers. The authority it confers is clearly defined by the law. Although the constitutional grant to Congress to make laws on the "subject of bankruptcy" is as broad as its power to make laws regulating interstate commerce, nevertheless, this bill does not attempt to even approach the scope and broadness of the powers conferred upon the Interstate Commerce Commission in such matters as the fixing of reasonable rates, the prescribing of routes, the approval of plans of reorganization and consolidation and the prescribing of accounting methods. The Supreme Court in many cases have construed and upheld these and other powers of the commission (Munn v. Illinois, 94 U. S. 113). In the light of many decisions, the constitutionality of this bill cannot be questioned.

Mr. CHANDLER. Are there any questions by any other members of the committee?

If not, I would like to ask Mr. Kit Williams, who is connected with the office of the Comptroller of the Currency, if he will not let us have his impressions of this bill and give us any reaction which he may have on it. I invited Mr. Williams and Mr. Kelly to come down here this morning in view of the fact the Comptroller of the Currency is brought into this bill.

STATEMENT OF HON. KIT WILLIAMS, ASSISTANT GENERAL COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY

Mr. WILLIAMS. Mr. Chairman, about a week ago our attention was called especially to this bill. We had known of the pendency of this subject for some time, but our special attention was called to the

matter about a week ago. We tried to give what suggestions we could from the standpoint of the administration or changes in the original bill.

Mr. CHANDLER. Will you please state for the record your position? Mr. WILLIAMS. Assistant General Counsel, Comptroller of the Currency's Office.

This bill, as now printed, meets substantially our suggestions. At the last printing, between the time when we discussed this bill with any member of the Sabath committee and now, there have been one or two little added inserts; for instance, the one at the bottom of page 2, which includes the last subject matter talked about, about the inclusion of the equity receiverships if the judge so desires.

We have had no real opportunity to analyze just what that would mean. I am frank to say that at first blush it gives me some little concern as to whether or not it would properly tie in with the functions as I construe them, and this selection of the Comptroller's Office to act as an administrative agent to the court.

As I conceive this bill or the movement to establish an administrative aid to the court, it is purely to have an efficient, neutral agency that will as economically as possible develop expertness in the detection of inequalities and matters that are not equitable in these reorganizations and, more than anything else, to hasten the reorganizations and to cut down the expense under the present system.

Speaking not so much officially but as to my individual reaction, it seems to me that the cause of this expense has been the fact that 74 and 77B have injected into judicial proceedings that are really administrative, and those administrative proceedings have been dignified in the court hearings at a cost which is not justified. I am assuming that these costs have been properly granted by the courts. There is no reflection of any kind on the judiciary or the Federal judiciary, for which we have the highest regard. But even properly granted fees in the proper amounts would amount to undue expense, because gathering around the table, as was done in the case of the reorganization of banks and hearing what the interested parties had to say, and giving everybody an opportunity to appear very informally before our examiners, accountants, and auditors, this has risen almost to the dignity of a side court hearing by a master for which fees have been allowed upon the basis of attorney fees and upon the basis of masters' fees rather than upon the basis of clerical administrative fees. Most of it is just that kind of subject matter. So, as I conceive the bill, it is to put the duties where they properly belong, in an administrative proceeding and administrative agency until they are congealed or crystallized into a plan that can be approved or disapproved upon objections specifically brought out to the court, and also to prevent any one character of interest taking advantage of other characters of interest by virtue of the fact that they might be more abundantly equipped to present their side of the matter to the master or to the receiver, as the case may be.

Of course, we have considered the matter from the standpoint of whether it would in any way interfere with our administration of national banks and of the receiverships of national banks. And I think we have some pardonable pride in the efficiency with which we feel that those have been administered, and we would not do anything that would interfere with that. But we do feel that the

peak of the receiverships has been passed. At the peak we had some 1,511 national banks of all sizes, from the huge banks in Detroit down to the small banks of $25,000 capitalization. That has now been reduced to something below 1,300 from the 1,511 receiverships. Of those, in excess of 1,200, or between 1,200 and 1,300 receiverships pending now, a great many of them are ready for closing; and we hope to close a great many more very soon.

At the peak of our reorganizations this was the picture. Of course, on March 6 we had all of the banks closed, but at the end of the holiday period we had some 1,490 banks that were not permitted to reopen, but were put into the hands of conservators. That would seem to have been a tremendous job; yet the Reorganization Division was set up within a period of some 3 or 4 days and nights— because they did work all night. There was one attorney and some 50 examiners called in from the field. That one attorney remained until the middle of April, when we had two. About the first of May we had acquired, and we remained with that number of attorneys, that is, three attorneys, until October 1933.

We reorganized some 1,479 national banks of all sizes with only the staff of three attorneys until October, and in October, when the preferred-stock movement reached its peak, another attorney was added to take care of the preferred-stock section. So no big bureau with all kinds of ramifications was established; but I believe the work was done efficiently, and the banks in conservatorship were practically all reorganized in one form or another within a year and a half.

Mr. MICHENER. Those attorneys were your Washington set-up, were they, Mr. Williams?

Mr. WILLIAMS. Yes, sir; that is correct.

Mr. MICHENER. Each bank in receivership had a local attorney as the receiver for that particular bank, did it?

Mr. WILLIAMS. As they went into receivership; yes, sir. Of course, they had to have a local attorney. Those local attorneys were usually attorneys for the administrative function of the liquidation, and purely the liquidation of assets under the supervision of this office. However, this office did not leave to the attorneys in the field all of the administration of those receiverships and merely content itself to supervising. For instance, in a very large settlement in Detroit, a settlement by which we received for the creditors $5,405,000, it cost the depositors nothing but the expenses of three trips of an attorney from this office. No local attorney at all was involved in that settlement.

Another settlement of practically the same amount, a very large amount of directors' liability for mismanagement of the bank, was handled entirely from this office without local counsel, except the last day or two he merely presented the consent order to the court. That settlement involved $3,000,000.

So we have been able to do on salaries, and not very high salaries, all of the administrative work together with the negotiations for settlement and hearings for the organization of different corporations which we might hold as securities. We have run into 77B in our receiverships time and time again. With our receiverships holding perhaps the balance of power, in the sense of holding these securities which have been pledged to it and possibly foreclosed or of

which it had become the owner, it was necessary to consider the reorganization under 77B.

As I see it, it all boils down to the proposition of whether or not these reorganizations can be had in a formal way until the facts are developed before they go to the court and in such a way that the court can have before him a quick summary which is dependable and from a neutral agency, and done by people who are drawing administrative salaries rather than Masters' fees and judicial fees commensurate with the dignity of a judicial hearing. It seems to me that is the gist of it.

Mr. FULLER. Some questions have been raised as to whether or not you are equipped as the proper agency to perform the duties under this bill, and also as to whether or not it would mean an army of employees, and as to whether or not it would be an expense or a selfsustaining matter to perform the duties under the terms of this bill. Mr. WILLIAMS. As to the first question, as to whether or not the Comptroller would be willing to act, he would be willing to act; and he has gone over the high spots in this bill and he is in accord with its general purposes and with the general provisions of the bill. He feels that it would serve a very proper end to have this administered by some independent agency equipped to handle it. At one time in the bill there was a provision for additional salary, but that was scratched out by his own hand, of course, because he wants no added compensation for these duties.

Generally, I can say "yes", that he will be willing to do it, because he thinks it would add to the general recovery of things and hasten recovery and eliminate expense and the criticisms that reorganizations have had. And he feels that our office is equipped to do it. Of course, there would be some expansion necessary. We would have to have some men particularly versed in the particular industries as advisers.

Mr. O'MALLEY. I want to say right here that our committee was unanimous in its opinion that the Comptroller could handle this job if the bill be passed.

Mr. WILLIAMS. I want to bring out the fact that we are not actively seeking the position. But the Comptroller would be glad to serve and he thinks it would be a very important function, and he wants to do all he can to aid in attaining the proper end.

Mr. MICHENER. I raised that question a little while ago as to whether or not these additional duties should be given to the Comptroller. Our Comptroller's office has always been a splendid office. They deal with banking, and they have experts who understand the banking system. They have been able to accomplish much, at least during the depression, because of their authority over the national banks, and they were also able to get agreements which possibly sometimes the people agreeing to them were not very enthusiastic about, but you had the say as to whether or not a bank would open or remain closed, and you placed your cards on the table and said, "Your bank closes if you do that, but it opens if you do this. If you do not do that, it does not open."

That is a sort of a "Chinaman's choice", and you were very successful. But would you want such arbitrary powers in bankruptcy as you had under the banking laws?