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any person to file with it a statement in writing, under oath, or otherwise as the Commission shall determine, as to all the facts and circumstances concerning the matter to be investigated. The Commission is authorized, in its discretion, to publish information concerning any such violations, and to investigate any such facts, conditions, practices, or matters as it may deem necessary or proper to aid in the enforcement of the provisions of this subsection (p), in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this subsection relates.

Any person who willfully violates any provision of this subsection, or any rule or regulation made thereunder the violation of which is made unlawful, or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed hereunder or under any rule or regulation authorized hereby, 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 less than $1,000 nor more than $10,000 or by imprisonment for not less than one year nor more than three years, or by both such fine and imprisonment, in the discretion of the court; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation.

The provisions of this subsection (p) shall not be applicable to any person or committee which has begun to solicit, obtain, or use proxies, authorizations, or deposit agreements prior to the effective date of this amendatory section in connection with proceedings under this section as in force prior to such effective date or receivership proceedings against a railroad then pending in any State or Federal court, unless such person or committee makes application to the Commission and receives authority to act as in this subsection provided, in which event the provisions of this subsection (p) shall be applicable to such person or committee, but such authorization shall not be upon terms which shall invalidate any action theretofore taken, or any rights or obligations which have theretofore arisen: Provided, That with respect to committees which are not subject to this subsection (p) the judge shall scrutinize and may disregard any limitations or provisions of any deposit agreements, committee, or other authorizations affecting any creditor or stockholder 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, including the collection of unreasonable amounts for compensation and expenses.

(q) The provisions of section 12 of the Interstate Commerce Act, as amended March 2, 1889, February 10, 1891, and February 28, 1920, shall be applicable to enable the Commission to perform its duties under this section and the provisions of such section shall apply to the debtor, any subsidiary or affiliated company, or any other person as herein defined.

(r) If any provision of this amendatory section, or the application thereof to any person or circumstances, is held invalid, the remainder of this amendatory section, or application of such provision to other persons or circumstances, shall not be affected thereby.

(s) Proceedings pending under this section (Act of March 3, 1933) on the effective date of this amendatory section shall continue under, and be governed by, the provisions of this amendatory section: Provided, That the enactment of this amendatory section shall not invalidate any action taken before its effective date pursuant to this section as it existed prior to the enactment of this amendatory section.

Section 77 was originally enacted in March, 1933, 47 Stat. 1474, 11 U.S.C. sec. 205 (1934). The amendment of August, 1935, 49 Stat. 911 (1935), represented a complete rewriting of the former section. The changes fell broadly into two classes, (1) changes relating to the reorganization plan, its submission and confirmation, (2) changes relating to the administration of the estate and the clearing of the way for reorganization.

(1) Changes Relating to the Reorganization Plan.

One of the main difficulties in the former act was that assent by twothirds of each class of creditors was necessary for the approval of a plan. This obstructed reorganizations because of the numerous classes of creditors. To correct this, three changes were made. The requisite number of assents was reduced from two-thirds of the total amount of claims or stock in each class to two-thirds of the amount of claims or stock voting on the plan in each class. Thus a plan is no longer subject to defeat simply because of the inertia of creditors or stockholders. The second change prescribed a single method of general application for dispensing with the assent of a class of security holders. The third change, made to lessen the power of objectors, empowered the court to confirm a plan not accepted by twothirds of a class whose acceptance would otherwise be required if the court concludes that the plan "makes adequate provision for fair and equitable treatment for the interests or claims of those rejecting it," and that "such rejection is not reasonably justified in the light of the respective rights and interests of those rejecting it and all the relevant facts." Section 77e, p. 104, ante. For a drastic application of this "cram down" provision see Reconstruction Finance Corporation v. Denver & R. G. W. R. Co., 328 U.S. 495, 66 S.Ct. 1282, 90 L.Ed. 1400 (1946), Insurance Group Committee v. Denver & R. G. W. R. Co., 329 U.S. 607, 67 S.Ct. 583, 91 L.Ed. 547 (1947), especially the dissent of Mr. Justice Frankfurter, 67 S.Ct. at page 589.

Several procedural changes were also made. Advantages of the amended procedure are that the expense of submission of the plan is avoided until the proceedings have reached a point where the court has declared itself ready to confirm the plan if accepted, and that the submission of an alternative plan is avoided. The method of valuation of the property held by railroad companies was made both less difficult and less expensive.

Subsection b(3) contains what has sometimes been called the "rain check" feature authorizing "the issuance to any . . . creditor or stockholder of options or warrants to receive, or to subscribe for securities of the reorganized company . ." The quoted monicker suggests that the stockholders may be offered another run for their money in case the earnings of the railroad improve. In re Erie R. Co., 37 F.Supp. 237 (E.D.Ohio, 1940), preferred and common stockholders were offered one new share for each five old shares and an option to purchase 14 new shares of common for each old share at $37.17 per share plus interest, exercisable up to January 1, 1945. The Interstate Commerce Commission had found a valuation applicable to the stock of $22,000,000 out of a total reorganized capitalization of $333,000,000. The provisions for options and warrants are clearly permissive, and not mandatory. Stockholders were altogether excluded in the Great Western, Missouri Pacific and St. Paul reorganizations. In re Chicago Great Western R. Co., 29 F.Supp. 149 (N.D.Ill.1939); In re Missouri Pacific R. Co., 39 F.Supp. 436 (E.D.Mo.1941); In re Chicago, M. St. P. & P. R. Co., 58 F.Supp. 384 (N.D.Ill.1944). For analysis indicating that the clause is at best superfluous, and perhaps confusing, see Friendly, Railroad Reorganization Amendment, 36 Col.L.Rev. at 38 (1936).

(2) Changes Relating to the Administration of the Estate.

The most important of these changes are those relating to the appointment of one or more trustees. Under the original act such appointment was discretionary; under the new act it is mandatory, requiring ratification by the Commission. The detailed regulation of protective committees required by the new act also represents a departure. The purpose of the change is to protect the stockholders and public from exploitation through being charged extravagant fees for the services of these committees, which were payable either by the security holders themselves, or out of the debtor's estate. Under the present section, the committees are regulated by the Interstate Commerce Commission, which must approve the provisions of the agreements which govern the compensation and expenses to be received by such committees. No fees to committee members are payable out of the estate.

Another change was necessitated because, under the original section, the court was not given power to authorize the sale of a branch line of the debtor, although its severance was to the best interests of all concerned. The present section authorizes such sales under terms to be approved by the Commission and the court.

It thus appears that the major purpose of the Amendment of 1935 was to secure the adoption of a suitable, fair, plan of reorganization, with a minimum of delay and expense. The most important changes, looking toward that end, have been indicated above.

The 1935 amendments to section 77 were carefully analyzed in Craven and Fuller, "The 1935 Amendments to the Railroad Bankruptcy Law," 49 Harv. L.Rev. 1254 (1936); Friendly, "Amendment of the Railroad Reorganization," 36 Col.L.Rev. 27 (1936); Shields, "Procedural Delays in Recent Amendments to the Railroad Bankruptcy Act," 21 St. Louis L.Rev. 317 (1936).

Act of Apr. 9, 1948, P.L. 478, 80th Cong.
62 Stat. 163, 49 U.S.C.A. § 20b

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That it is hereby declared to be in aid of the national transportation policy of the Congress, as set forth in the preamble of the Interstate

Commerce Act, as amended, in order to promote the public interest in avoiding the deterioration of service and the interruption of employment which inevitably attend the threat of financial difficulties and which follow upon financial collapse and in order to promote the public interest in increased stability of values of railroad securities with resulting greater confidence therein of investors, to assure, insofar as possible, continuity of sound financial condition of common carriers subject to part I of said Act, to enhance the marketability of railroad securities impaired by large and continuing accumulations of interest on income bonds and dividends on preferred stock and to enable said common carriers, insofar as possible, to avoid prospective financial difficulties, inability to meet debts as they mature, and insolvency. To assist in accomplishing these ends and because certain classes of the securities of such carriers are in the usual case held by a very large number of holders, and, further, to enable modification and reformation of provisions of the aforesaid classes of securities and of provisions of the instruments pursuant to which they are issued or by which they are secured in cases where such modification and reformation shall have become necessary or desirable in the public interest in order to avoid obstruction to or interference with the economical, efficient, and orderly conduct by such carriers of their affairs, it is deemed necessary to provide means, in the manner and with the safeguards herein provided, for the alteration and modification, without the assent of every holder thereof, of the provisions of such classes of securities and of the instruments pursuant to which they are outstanding or by which they are secured.

Sec. 2. Part I of the Interstate Commerce Act, as amended, is amended by adding after section 20a the following new section:

Sec. 20b (1) It shall be lawful (any express provision contained in any mortgage, indenture, deed of trust, corporate charter, stock certificate, or other instrument or any provision of State law to the contrary notwithstanding), with the approval and authorization of the Commission, as provided in paragraph (2) hereof, for a carrier as defined in section 20a (1) of this part to alter or modify (a) any provision of any class or classes of its securities as defined in section 20a (2) of this part being hereinafter in this section sometimes called "securities"; or (b) any provision of any mortgage, indenture, deed of trust, corporate charter, or other instrument pursuant to which any class of its securities shall have been issued or by which any class of its obligations is secured (hereinafter referred to as instruments): Provided, That the provisions of this section shall not apply to any equipment-trust certificates in respect of which a carrier is obligated, or to any evidences of indebtedness of a carrier the payment of

which is secured in any manner solely by equipment, or to any instrument, whether an agreement, lease, conditional-sale agreement, or otherwise, pursuant to which such equipment-trust certificates or such evidences of indebtedness shall have been issued or by which they are secured.

(2) Whenever an alteration or modification is proposed under paragraph (1) hereof, the carrier seeking authority therefor shall, pursuant to such rules and regulations as the Commission shall prescribe, present an application to the Commission. Upon presentation of any such application, the Commission may, in its discretion, but need not, as a condition precedent to further consideration, require the applicant to secure assurances of assent to such alteration or modification by holders of such percentage of the aggregate principal amount or number of shares outstanding of the securities affected by such alteration or modification as the Commission shall in its discretion determine. If the Commission shall not require the applicant to secure any such assurances, or when such assurances, as the Commission may require shall have been secured, the Commission shall set such application for public hearing and the carrier shall give reasonable notice of such hearing in such manner, by mail, advertisement, or otherwise, as the Commission may find practicable and may direct, to holders of such of its classes of securities and to such other persons in interest as the Commission shall determine to be appropriate and shall direct. If the Commission, after hearing, in addition to making (in any case where such alteration or modification involves an issuance of securities) the findings required by paragraph (2) of section 20a, not inconsistent with paragraph (1) of this section shall find that, subject to such terms and conditions and with such amendments as it shall determine to be just and reasonable, the proposed alteration or modification

(a) is within the scope of paragraph (1);

(b) will be in the public interest;

(c) will be in the best interests of the carrier, of each class of its stockholders, and of the holders of each class of its obligations affected by such modification or alteration; and

(d) will not be adverse to the interests of any creditor of the carrier not affected by such modification or alteration, then (unless the applicant, carrier shall withdraw its application) the Commission shall cause the carrier, in such manner as it shall direct, to submit the proposed alteration or modification

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