1140 Continuation of payments during Proviso. to "SEC. 728. Without prejudice to existing rights of all creditors, pendency of proceed including those affected by the plan, and as a condition to the approval of any plan by the special court, the petitioner, from and after the filing of the petition with the court and until the making of a final order by the special court approving a plan or dismissing the petition, shall continue to make or tender payment to all creditors affected by the plan of sums currently payable to such creditors equal to the amounts proposed to be paid to such creditors under the plan: Provided, That the making of such payments shall not constitute 1 preference within the meaning of the Bankruptcy Act, nor shal acceptance of such payments constitute an acceptance of a plan. If, from and after the filing of the petition with the special court, there shall be any failure to make or tender such payments, the special court, unless there is good cause shown for the failure, shall dismis Adjustments to con the proceedings. In finally approving any plan, the court may maz or require to be made such adjustments with respect to said payments or any of them as may be necessary to make the same conform to the provisions of said plan as finally approved. constitute a prefer ence. Dismissal for non payment. form to approved plan. Deposit, etc., of security. Tax provisions. Ante, pp. 195, 196, 424, 425, 862, 883. I. R. C. §§ 1801, 1802, 3481, 3482. Income, gain, etc., justment of indebted with respect to ad ness. Transmittal of copies of papers to Secretary of Treasury. Notice of any or der affecting Federal claims to Treasury. "SEC. 729. In providing for any such payments the petitioner may require any bond or other security, including interest coupons affected by such payments to be presented to or deposited with a paying agent or depositary named by the petitioner for appropriate stamp ing to show the amounts of such payment. "ARTICLE VI-TAX PROVISIONS "SEC. 735. The provisions of Sections 1801, 1802, 3481, and 499 of the Internal Revenue Code and any amendments thereto, uness specifically providing to the contrary shall not apply to the issuan transfer, or exchange of securities or the making or delivery of o veyances to make effective any plan of adjustment confirmed under the provisions of this chapter. No income, gain, or profit taxsh under any law of the United States or of any State, now in force of hereafter enacted, shall in respect to the adjustment of the indebted ness of any petitioner in a proceeding under this chapter be deemed to have accrued to or to have been realized by such petitioner by reason of a modification of or cancelation in whole or in part of any of the indebtedness of the petitioner affected by a proceeding under this chapter. "SEC. 736. In addition to the notices elsewhere expressly provided the clerk of the court in which any proceedings under this chapter an pending shall forthwith transmit to the Secretary of the Treasury copies of "(1) Every petition filed under this chapter; (2) The orders approving or dismissing petitions; "(3) The orders approving plans as filed or as modified, together with copies of such plans as approved; "(4) The decrees approving and confirming plans and the adjus ments provided thereby, together with copies of such plans approved; (5) The injunctions or other orders made under section 79% of this chapter; "(6) The orders dismissing proceedings under this chapter; and "(7) Such other papers filed in the proceedings as the Secretary of the Treasury may request or which the court may direct to be transmitted to him. "SEC. 737. Any order fixing the time for confirming a plan which affects claims or stock of the United States shall include a notam of not less than thirty days to the Secretary of the Treasury. 53 STAT.] 76TH CONG., 1ST SESS.-CH. 393-JULY 28, 1939 "SEC. 738. The special court shall have power to determine the amount and legality of claims of the United States for taxes or customs duties, and to order payment thereof; and the order of the special court (provided for in section 714) approving the petition shall have the effect of an adjudication of bankruptcy of the petitioner for the purposes of section 274 of the Internal Revenue Code and the corresponding provisions of prior and subsequent revenue acts. The running of the statute of limitations on the assessment or collection of any internal-revenue tax shall be suspended while a proceeding under this chapter is pending and until it is finally dismissed. “ARTICLE VII—INTERSTATE COMMERCE COMMISSION “SEC. 740. If, in any application filed with the Commission pursuant to section 20a of the Interstate Commerce Act for authority to issue or modify securities, the applicant shall allege that the purpose in making such application is to enable it to file a petition under the provisions of this chapter, the Commission shall take final action on such application as promptly as possible, and in any event within one hundred and twenty days after the filing of such application, unless the Commission finds that a longer time, not exceeding sixty days is needed in the public interest. "ARTICLE VIII-FINAL DECREE AND REVIEW Time limitation upon Applications for "SEC. 745. Any final order or decree of the special court may be reviewed by the Supreme Court of the United States upon applica- certiorari. tion for certiorari made by any person affected by the plan who deems himself aggrieved within sixty days after the entry of such order or decree, pursuant to the provisions of the Federal Judicial Code. Power of court to require reports of tioner. "SEC. 746. In the decree approving and confirming the plan the court may require such reports of the action taken by the petitioner action taken by petithereunder in the execution of the plan as may be necessary to a final disposition of the cause, and in its final decree disposing of the cause the court shall retain jurisdiction in the district court to the extent necessary to protect and enforce the rights of the parties under said plan and the orders of the court thereon. “ARTICLE IX-FILING RECORD WITH COMMISSION Copies of records to be filed with Commis "SEC. 750. The clerk of the court in which any proceedings under this chapter are pending, shall forthwith transmit to the Interstate ion. Commerce Commission copies of all pleadings, petitions, motions, applications, orders, judgments, decrees and other papers in such proceedings filed with the court or entered therein, including copies of any transcripts of testimony, hearings or other proceedings that may be transcribed and filed in such proceedings together with copies of all exhibits, except to the extent that the court finds that compliance with this section would be impracticable. "ARTICLE X-TERMINATION OF JURISDICTION "SEC. 755. The jurisdiction conferred upon any court by this chapter shall not be exercised by such court after July 31, 1940, except in respect of any proceeding initiated by filing a petition under section 710 hereof on or before July 31, 1940." Approved, July 28, 1939, 9:45 a. m., E. S. T. Termination of jurisdiction. Ante, p. 1135. AMENDING THE BANKRUPTCY ACT BY ADDING CHAPTER XV THERETO FOR THE PURPOSE OF ENABLING THE VOLUNTARY ADJUSTMENT OF OBLIGATIONS OF RAILROADS March 31, 1939.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. CHANDLER, from the Committee on the Judiciary, submitted the following REPORT [To accompany H. R. 5407] The Committee on the Judiciary, to whom was referred the bi H. R. 5407 to amend an act entitled "An act to establish a uniform system of bankruptcy throughout the United States," approved July 1, 1898, and acts amendatory thereof and supplementary thereto, after consideration, report the same favorably to the House with the unanimous recommendation that the bill do pass. This bill is the successor of H. R. 3704 on which extended hearings were held, and embodies all the amendments adopted by the committee. GENERAL STATEMENT The purpose of the bill is to enable railroads which are fundamentally sound as transportation systems but which are handicapped financially by maturing obligations or unnecessarily heavy caps structures, to enter into agreements with their creditors and security holders for the postponement or modification of obligations, are submit such agreements to the Interstate Commerce Commission an then to courts of bankruptcy for hearing and appropriate action by which such agreements are made effective without impairing the normal operations, employee relations, and the permanent stability of the railroads. Generally speaking, American railroads may be divided into there groups: 1. Those clearly solveitt and in position to operate successfully. 2. Those insolvent and needing complete reorganization as provided by section 77 of the Bankruptcy Act. 2 AMENDING THE BANKRUPTCY ACT 3. Those in temporary financial difficulties and requiring temporary relief but not so involved as to require thorough overhauling of their capital structures. This bill, if enacted, will make available to the railroads in the third group, and to their subsidiaries and lessor corporations the bankruptcy power contained in article I, chapter 8, clause 1 of the Constitution of the United States, which permits Congress to establish uniform laws on the subject of bankruptcies. The procedure provided by the bill is simple and direct. Stated briefly, any railroad desiring to effect an adjustment of certain of its obligations, as well as the modification or postponement of certain of its securities or its capital structure, prepares a proposed plan of adjustment and secures assurances of acceptance of the plan from creditors and security holders having at least 25 percent of the claims affected thereby. Whenever the minimum of 25 percent of the aggregate amount of the claims affected by the proposed plan of adjustment give such assurance, the railroad is authorized to submit the proposed plan to the Interstate Commerce Commission for examination in accordance with the requirements of section 20a of the Interstate Commerce Act. Should all of the requirements of said section 20a be met, the Commission is authorized to issue an order approving the issuance or modification of the securities involved in the plan. Among the salient provisions of section 20a on which the Interstate Commerce Commission is required to make findings prior to the issuance of the order referred to are: Such proposed issuance or modification of securities is in the public interest, is consistent with the continuance by the railroad corporation of service to the public as a common carrier, and will not impair its ability to perform such service. Thereafter, the railroad desiring to effect such proposed plan shall obtain assents thereto by its creditors holding "more than twothirds of the aggregate amount of the claims affected by said plan, which two-thirds shall include at least a majority of the aggregate amount of the claims of each affected class." When such assents are secured, the railroad may file a petition in the United States district court having jurisdiction as provided in the bill, and a special court of three judges is convened to conduct the proceedings relative to such plan, hold hearings, and exercise jurisdiction over the petitioning railroad and its property, although the court does not appoint a receiver or trustee or undertake to control the operation of the carrier. If the three-judge court, after hearings, shall be satisfied that the proposed plan of adjustment has been assented to by the requisite percentages aforesaid, and "that the plan is fair and equitable, is in the public interest, affords due recognition to the rights of each class of creditors and stockholders, does not discriminate unfairly in favor of any class of creditors or stockholders, and will conform to the requirements of the law of the land regarding the participation of the various classes of creditors and stockholders," the court shall file an opinion setting forth its conclusions and the reasons therefor and shall enter a decree approving and confirming such plan, provided the plan, as submitted to or as modified by the court, has been accepted by creditors holding more than three-fourths of the aggregate amount of the claims affected by the plan, including at least three-fifths of the aggregate amount of the claims of each affected class. Upon confirmation of the plan, the decree of the three-judge court is binding on the petitioner and on all the creditors and security holders of the railroad. While the effect of the decree of the court is to establish the plan of adjustment over the possible objection of a dissenting minority of less than 25 percent of all of the creditors and security holders affected thereby, care has been taken that the rights of minority interests shall be properly safeguarded and that due process of law shall be exercised. The Interstate Commerce Commission is given a maximum of 120 days within which to discharge fully its responsibilities as set forth in section 20a of the Interstate Commerce Act, and the public interest in the proceeding is protected by the finding of the Commis sion, after hearing, that the issuance or modification of securities as proposed conforms to section 20a. The private rights of creditors and stockholders are protected in the proceedings conducted by the three-judge court, and by its findings as required by section 725 of the bill. Moreover, the plan of adjustment approved by the threejudge court may contain appropriate provisions for the safeguarding of the interests of creditors and others affected by the plan "in all matters of the petitioner's financial policy and operation." From the filing of the proceedings in court, not more than 1 year's time is allowed within which the proceedings shall be completed and the plan made effective. Parties in interest may intervene, and any holder of securities and stock of the railroad is given the right to present evidence and be heard. During the pendency of the pro ceeding, the petitioning railroad must continue to make payments to all creditors affected by the plan of obligations currently payable and equal to the amounts proposed to be paid under the plan, then by preventing the discontinuance of interest payments, etc., as would be the case if the petition were filed in accordance with section 77 of the Bankruptcy Act, or in equity. Prompt review of the decision of the three-judge court is authorized by certiorari to the United States Supreme Court. Equipment trust certificates, taxes, operating expenses, wages, employment contracts, unliquidated claims, and other similar obligations are not affected by the plan of adjustment. The bill is not intended as an amendment of or a substitute for see tion 77 of the Bankruptcy Act. Section 77 is a comprehensive reorganization statute which codifies equity procedure in large meas ure, and avails itself of the bankruptcy power to the end that railroad reorganizations, as extensive as the necessities may require, can be effective. The pending bill makes no provision for trustees, counsel, or committees; contemplates that the debtor shall continue to operate its property; and enables the debtor and its creditors to agree up a plan providing for adjustments of the maturities of interest d principal. No provision is made for involuntary proceedings or r the presentation of alternative plans by the respective stockholder or creditor interests as in section 77. It is not contemplated that any plan of adjustment can be approved by the court for railroad companies where the continued participatist of stockholders in the company can be maintained only at the sacrifice of substantive rights of creditors. The bill provides that the ' must conform to the requirements of the law of the land with reletence to the participation of stockholders and creditors, and this pro vision, where used in section 77, has been interpreted to require that the plan must conform to the principles of Northern Pacific Ra |