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and preserves the limitations upon the claims of landlords which are found in the present law, and which have been held constitutional by the United States Supreme Court.

Section 203 gives the judge the power to prevent either the consummation, or obstruction to the consummation, of a plan of reor ganization by the holders of claims and stock whose acceptance or failure to accept a plan is found by the judge to be in bad faith. Under this section such claims or stock may be disqualified for the purpose of determining the majorities requisite to acceptance of a plan. Section 77B is deficient in failing to grant this power to the judge in express terms.

Sections 204 and 205 insure participation in the benefits of the reorganization to those who, through inadvertence or otherwise, have failed to file their claims or otherwise to evidence their interests during the pendency of the proceedings. A 5-year minimum limitation is placed upon the period within which such persons may take the steps prescribed to obtain their share in the distribution under a plan, after which time, or such longer time as the judge may fix, the securities or cash remaining unclaimed become the property of the reorganized company.

Section 206, derived in part from section 77B (c), gives any creditor or stockholder, any indenture trustee, and the debtor, the right to be heard on all matters in the proceeding. Existing restrictions on such right to be heard are eliminated as being undesirable. It also allows a labor union of employees of the debtor, in the discretion of the judge, to be heard on the economic soundness of the plan affecting the interests of the employees.

Section 207, derived from section 77B (c), empowers the judge to permit a party in interest, for cause shown, to intervene generally or specially. It also empowers the judge to designate the contents, manner, form, and recipients of any notices, except where otherwise provided in the chapter.

Section 208 requires the Securities and Exchange Commission when requested by the judge, and permits it, upon its own motion if approved by the judge, to intervene in a proceeding and thereupon gives it the right to be heard on all matters therein, in the interests of adequate representation of the public interest and for the purpose of regularizing its assistance to the courts. The Securities and Exchange Commis sion may not take an appeal in any such proceeding.

Section 209, derived from section 77B (b), permits any creditor or stockholder to act in person, by an attorney, or by a duly authorized agent or committee.

Sections 210, 211, and 212 grant to the judge control over protective committees and other representatives of creditors and stockholders. To enable the judge to exercise his control effectively, relevant information is required to be furnished to the court concerning employ ment and interests of such representatives, and the interests of the persons represented.

Under section 212, which is derived from section 77B (b), the judge is empowered to disregard the provisions of any authorization, enforce an accounting, restrain the exercise of any power found to be unfair or inconsistent with public policy, and may limit any claims or stock acquired by such attorneys, agents, indenture trustees, or committees,

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in contemplation of or in the course of the proceeding, to the consid eration paid therefor.

Section 213 requires that the court be given assurance that repre sentatives of security holders, before taking part in the proceedings, have met the requirements of any applicable State and Federal laws regulating their activities and personnel.

ARTICLE X. PROVISIONS OF PLAN

Section 216, which is derived almost entirely from section 77B (b); defines a plan of reorganization in terms of what it shall and may include. Most of the changes in the provisions of this article, as found in section 77B, have been made for the sake of clarification, Subsection (1) of section 216, derived from section 77B (b) (1) and (b) (2), provides that a plan shall include provisions altering or modify, ing the rights of creditors generally, or of some class of them, and may include provisions altering or modifying the rights of stockholders, or some class of them.

Subsection (2) of section 216, derived from section 77B (b) (10)," permits a plan to deal with all or any part of the debtor's property. Subsection (3) of section 216, derived from section 77B (b) (3), requires the plan to provide for the payment of all costs and expenses of administration and other allowances approved or made by the judge.

Subsection (4) of section 216, derived from 77B (b) (6), permits the rejection of any executory contracts in a plan of reorganization, except contracts in the public authority.

Subsection (5) of section 216, derived from section 77B (b) (8), requires a statement in the plan of what claims, if any, are to be paid in cash in full.

Subsection (6) of section 216, derived from section 77B (b) (7), requires an express statement in the plan of the claims or stock not to be affected by the plan, and of the provisions, if any, with respect to

them.

Subsection (7) of section 216, derived from section 77B (b) (5), makes provision for the treatment of any class of creditors affected by a plan where two-thirds of such class fail to accept the plan. In such event a plan must provide adequate protection for the realization of the value of such creditors' claims, either by transfer or sale, or retention by the debtor, subject to such claims, of the property dealt with by the plan and affected by such claims, or by a sale of such property free of claims at not less than a fair upset price, or by the appraisal and payment in cash of the value of such claims, or, finally, by any method that will equitably and fairly provide adequate pro-2 tection for the realization of such value.

Subsection (8) of section 216, derived from section 77B (b) (4), is concerned with the protection of the interests of nonassenting classes of stockholders. The value of their equity, if any, is to be protected through a sale of the debtor's property at not less than a fair upset price, or by appraisal and payment in cash of the value of their stock, or by any other fair and equitable method. Insolvency of the debtor, however, makes any provision for stockholders unnecessary.

Subsection (9) of section 216 provides that where long-term in debtedness, whether or not directly secured by specific property, is to

REVISION OF THE NATIONAL BANKRUPTCY ACT 35 be created or extended under a plan, the latter may provide for the retirement or amortization of such indebtedness within an appropriate time. In the case of security, that time is the expected useful life of the security; if there is no security or if it is of such nature that its expected useful life cannot readily be determined, a reasonable time, not to exceed 40 years, may be fixed. Use of this provision should make for sounder financial structures.

Subsection (10) of section 216, derived from section 77B (b) (9), requires the plan to provide adequate means for its execution, through any one or more of a number of general methods stated therein. These are not, however, set up as, or intended to be, all-inclusive.

Subsection (11) of section 216 directs the scrutiny of the court to the methods by which the management of the reorganized corporation is to be chosen, so as to insure, for example, adequate represen tation of those whose investments are involved in the reorganization. The plan must include provisions with respect to the manner of selection of directors, officers, or voting trustees, which are equitable, compatible with the interests of creditors and stockholders, and consistent with public policy.

Subsection (12) (a) of section 216 requires the inclusion in the charter of the debtor or its successor corporation upon reorganization, of provisions prohibiting the issuance of nonvoting stock, and providing for the equitable distribution of voting power among the securities possessing such power. Preferred stockholders are to be given the protection of adequate provision for the election of directors by them in the event of default in the payment of dividends on such stock. Subsection 12 (b) (1) deals generally with charter provisions relating to the terms, position, rights, and privileges of securities; and 12 (b) (2), with the nature and content of periodic reports to security holders. Subsection (13) of section 216 requires the plan to provide for the retention and enforcement of any claims belonging to the debtor or the estate which are not settled or adjusted as a part of the plan; these are to be enforced by the trustee, or if the debtor has been retained in possession, by an examiner appointed for that purpose. Claims retained may be enforced, if necessary, even after consummation of the reorganization.

Subsection (14) of section 216, derived from section 77B (b) (10), is an omnibus clause permitting the inclusion in the plan of any other appropriate provision not inconsistent with the provisions of the chapter.

ARTICLE XI. CONFIRMATION AND CONSUMMATION OF PLAN

Section 221 deals with the conditions to confirmation of a plan. It is derived without material change from section 77B (f).

Subsection (1) of section 221 is derived from section 77B (f) (2), (3), and (4), and remains unchanged in substance.

Subsection (2) of section 221, derived from section 77B (f) (1), provides, as a condition to confirmation of a plan, that the judge must be satisfied that it is "fair and equitable," and "feasible." Implicit in the former phrase is a prohibition against any unfair discrimination in the plan in favor of any class of creditors or stockholders and the express statement to that effect in section 77B is therefore

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unnecessary. "Feasibility" is of course concerned with the soundness of the plan.

Subsection (3) of section 221, derived from section 77B (f) (6), requires the judge to find that the proposal of the plan to be confirmed, and its acceptance, are in good faith, and have not been made or procured by means or promises forbidden by the Bankruptcy Act.

Subsection (4) of section 221, derived from section 77B (f) (5), requires full disclosure and the approval by the judge of all payments for services, and for costs and expenses, in connection with the plan or the proceedings, whether such payments are made or promised by the debtor, or by any corporation succeeding to it, or by any other person, Subsection (5) of section 221 requires the judge to pass upon the qualifications of the management and voting trustees, if any, of the reorganized debtor, as a condition to confirmation of a plan. The appointment of such persons to office, or their continuance therein, must be equitable, compatible with the interests of the creditors and stockholders, and consistent with public policy.

Section 222, derived in the main from section 77B (f), prescribes the conditions of alteration or modification of a plan of reorganization. All such changes require the approval of the judge. In addition, the acceptance of alterations or modifications by creditors or stockholders is required if the judge finds that their interests are materially and adversely affected thereby, and has held a hearing thereon. In this connection the procedure initially incident to the approval and confirmation of the plan is applicable also to the alterations and modifi

cations thereof.

Section 223, derived from section 77B (f), provides that creditors or stockholders who do not in writing reject a proposed alteration or modification shall be deemed to have accepted it, unless the previous acceptance of the plan by such creditors or stockholders provided otherwise.

Section 224 is concerned with the action to be taken upon confirmation of a plan, and the consequences of such confirmation.

Subsection (1) of section 224, derived from section 77B (g), makes a plan binding upon all parties once it is confirmed.

Subsection (2) of section 224, derived from sections 77B (h) and 77B (e) (2), requires the debtor or any new successor company to take all necessary steps to carry out the plan, including, where necessary, the procuring of the authorization, approval, or consent of regulatory bodies having jurisdiction over debtors which are public utilities.

Subsection (3) of section 224 empowers the judge to direct the deposit and distribution of moneys required to meet any cash payments under the plan. Unlike the practice in bankruptcy compositions this need not be done until the plan is confirmed.

Subsection (4) of section 224 specifies the creditors and stockholders to whom distribution under the plan is to be made. Under this provision, scheduled claims falling within the category specified, share in the plan; and if a claim is not scheduled, or is not fixed or liquidated. or is disputed, it may be proved before the date fixed by the court. Section 225 specifics the manner in which such disputed claims are to be determined.

Section 226, derived from section 77B (h), provides that, upon confirmation, the property dealt with by a plan, shall be free and clear of

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all claims and interests, except as provided in the plan or in the order confirming the plan or directing or authorizing the transfer or retention of the debtor's property.

Section 227, derived from section 77B (h), empowers the court to direct any necessary parties to execute and deliver such instruments, or to perform any other acts, as may be necessary to effect the consummation of the plan.

Section 228, derived from section 77B (h), specifies the content of the final decree. This includes, among other things, the discharge of the debtor, the discharge of the trustee, and the closing of the estate.

ARTICLE XII. DISMISSALS AND ADJUDICATIONS

Sections 236, 237, and 238, derived in part from sections 77B (c) (8) and (k) (4), provide for the dismissal of the proceedings, or alternatively, the liquidation of the debtor, as the interests of creditors and stockholders may require, in the event, among other contingencies, that no plan of reorganization is confirmed and consummated. A prior bankruptcy proceeding is to be continued from the point where it was stayed by the reorganization proceeding. If an adjudication has been entered, administration goes on in regular course; if no adjudi cation has been entered, a decree of adjudication will be made if there was no controverting answer, otherwise the contest will proceed to & hearing. In case an original petition for reorganization has failed, and an order is entered directing that bankruptcy proceed, the adjudication in such case is to be related back to the date of the filing of the original petition.

ARTICLE XIII. COMPENSATION AND ALLOWANCES

Section 241, derived in part from section 77B (c) (9), vests the judge with the power to make allowances, for services and for costs and expenses, to referees, special masters, trustees and their attorneys, and to attorneys for the debtor and for petitioning creditors. The latter may themselves be allowed only their proper costs and expenses. Sections 40 and 48 of the act, as relating to the compensation of referees and trustees, are made inapplicable to this chapter.

Section 242, derived in part from section 77B (c) (9), vests the judge with the power to make allowances to any parties in interest, to security holders' representatives, and to their respective counsel and agents, for services rendered or disbursements incurred in connection with the administration of the estate or with a plan approved by the court. These may be made, in the discretion of the judge, even though the plan may not be confirmed, and a liquidation is directed or the proceeding is dismissed.

Section 243 empowers the judge to grant allowances to creditors and stockholders, and their attorneys, for services and expenses incurred in connection with their submission of plans or suggestions therefor, or their objections to confirmation of a plan, or the adminis tration of the estate. These must contribute to the plan confirmed or to the refusal of confirmation of a plan, or be beneficial to the administration of the estate, if such allowance is to be granted.

Sections 244 and 245 deal with compensation and reimbursement for services and expenses in a bankruptcy proceeding which is superseded by a reorganization proceeding.