2 AMENDING THE MUNICIPAL BANKRUPTCY ACT that it is necessary only that the petition contain a list of those creditors whose claims are based solely on the securities evidencing the special assessment obligations. Provision is made also for notification to the owners of the property onerated with the assessments in order that the holders of legal or equitable interests in the property may be heard by the court which conducts the hearings and passes on the plan of composition. In compliance with clause 2a of rule XIII existing law is printed below in roman with new matter proposed to be inserted printed in italic: SEC. 83. (a) Any petitioner may file a petition hereunder stating that the petitioner is insolvent or unable to meet its debts as they mature and that it desires to effect a plan for the composition of its debts. The petition shall be filed with the court in whose territorial jurisdiction the petitioner or the major part thereof is located, and, in the case of any unincorporated tax or special-assessment district having no officials of its own, the petition may be filed by its governing authority or the board or body having authority to levy taxes or assessments to meet the obligations to be affected by the plan of composition. The petition shall be accompanied by payment to the clerk of a filing fee of $100, which shall be in lieu of the fees required to be collected by the clerk under other applicable chapters of the Uniform Bankruptcy Act of 1898, as amended. The petition shall state that a plan of composition has been prepared, is filed and submitted with the petition, and that creditors of the petitioner owning not less than 51 per centum in amount of the securities affected by the plan (excluding, however, any such securities owned, held, or controlled by the petitioner), have accepted it in writing. There shall be filed with the petition a list of all known creditors of the petitioner, together with their addresses so far as known to petitioner, and description of their respective securities showing separately those who have accepted the plan of composition, together with their separate addresses, the contents of which list shall not constitute admissions by the petitioner in a proceeding under this chapter or otherwise. Upon the filing of such a petition the judge shall enter an order either approving it as properly filed under this chapter, if satisfied that such petition complies with this chapter and has been filed in good faith, or dismissing it, if not so satisfied. "Wherever the petition seeks to effect a plan for the composition of obligations represented by securities, or evidences in any form of rights to payment, issued by the petitioner to defray the cost of local improvements and payable out of the proceeds of special assessments or special taxes levied by the petitioner, it shall be sufficient if the petitioner aver that the property liable for the payment of such securities, principal, and interest, is not of sufficient value to pay same, and that the accrued interest on such securities is past due and in default; and the list of creditors to be filed with such petition need contain only the known claimants of rights based on those securities evidencing the obligations sought to be composed under this chapter, and such list shall include separately the names and addresses of those creditors who have accepted the plan of composition. A list of the record owners or holders of title, legal or equitable, to any real estate involved in the proceeding, shall also be filed with the petition, and such record owners or holders of title shall be notified in the manner provided in this section for creditors and be entitled to hearing by the court upon reasonable application therefor." "The 'plan of composition', within the meaning of this chapter, may include provisions modifying or altering the rights of creditors generally, or of any class of them, secured or unsecured, either through issuance of new securities of any character, or otherwise, and may contain such other provisions and agreements not inconsistent with this chapter as the parties may desire. "No creditor shall be deemed to be affected by any pian of composition unless the same shall affect his interest materially, and in case any controversy shall arise as to whether any creditor or class of creditors shall or shall not be affected, the issue shall be determined by the judge, after hearing, upon notice to the parties interested. "For all purposes of this chapter any creditor may act in person or by an attorney or a duly authorized agent or committee. Where any committee, organization, group, or individual shall assume to act for or on behalf of creditors, such committee, organization, group, or individual shall first file with the court in which the proceeding is pending a list of the creditors represented by such AMENDING THE MUNICIPAL BANKRUPTCY ACT 3 committee, organization, group, or individual, giving the name and address of each such creditor, together with a statement of the amount, class, and character of the security held by him, and attach thercto copies of the instrument or instruments in writing signed by the owners of the bonds showing their authority, and shall file with the list a copy of the contract or agreement entered into between such committee, organization, group, or individual and the creditors represented by it or them, which contract shall disclose all compensation to be received, directly or indirectly, by such committee, organization, group, or individual, which agreed compensation shall be subject to modification and approval by the court. 79-956-77 - pt. 2 - 3 JULY 20 (legislative day JULY 18), 1939.—Ordered to be printed Mr. HUGHES, from the Committee on the Judiciary, submitted the following REPORT [To accompany H. R. 6505] The Committee on the Judiciary, to whom was referred the bill (H. R. 6505) to amend an act entitled "An act to establish a uniform system of bankruptcy throughout the United States," approved July 1, 1898 and act amendatory thereof and supplementary thereto, after consideration and amendinent, report the same favorably to the Senate with the recommendation that as amended, it do pass. The report of the subcommittee to the full committee is herewith adopted as the report of the committee: The Municipal Bankruptcy Act is now known as chapter IX of the Bankruptcy Act. Said act permits all taxing units (except countics and parishes) to file voluntary petitions in bankruptcy upon obtaining the consent in writing of creditors owning 51 percent, or more, of obligations of the unit involved which are sought to be affected by a plan of composition upon which the petition in bankruptcy is founded and permits confirmation of said plan of composition upon obtaining the consent in writing of creditors owning 66% percent, or more, of obligations of the unit involved, thus enabling the taxing unit to settle or compromise its bonded indebtedness at terms different than those applying to the original issue, provided the plan is fair and the Federal court of the United States approves said plan. Many debt adjustments had proceeded to a point of exchange on a voluntary basis before the enactment of chapter IX and a weakness in the act developed shortly thereafter when it was discovered that there were no mechanics available for confirming plans of composition which were partially completed without obtaining the consent of the holders of 662% percent of the unexchanged obligations in such partially_completed plans. This weakness resulted in the enactment of the so-called Pepper amendment to the Municipal Bankruptcy Act, which amendment permitted partially completed plans of composition to be submitted to the Federal court for approval upon the taxing unit obtaining the written consent of the holders of 66% percent of the aggregate claims affected by the plan, including the holders of the exchanged bonds under such partially completed plans of composition. H. R. 6505 passed the House of Representatives on June 5, 1939, and was referred to this subcommittee. This provided the specific information which 2 AMENDING THE MUNICIPAL BANKRUPTCY ACT must be proved in a petition in bankruptcy covering special assessment obligations where the full faith and credit of the issuing taxing unit is not pledged to the payment of the securities so issued; whereas the original act required proof of inal ility of the petitioning taxing unit as such to pay its indebtedness according to the terins of the original contracts. In regard to this amendment, which constitutes H. R. 6505 as passed by the House of Representatives, there seems to be no objection to the enactment thereof because it is inerely designed to correct a technical and procedural defect in the Municipal Bankruptcy Act. This committee has heard no objection expressed to the enactment of such amendment. Counties and parishes were not included in the type of taxing units permitted to avail themselves of the Municipal Bankruptcy Act as it exists at the present time, or as it would appear after the enactment of H. R. 6505. Conditions which have developed since the passage of H. R. 6505 by the House of Representatives resulted in the introduction of the proposed amendment to H. R. 6505 by Mr. Andrews, for himself and for Mr. Pepper. These amendments propose briefly to: 1. Give to counties and parishes the privileges of proceeding under the terms of the Municipal Bankruptcy Act, as amended and proposed to be amended by H. R. 6505, in the same manner and to the same extent as other taxing units. 2. To permit proof of actual exchanges of securities under partially completed plans of composition, whether heretofore or hereafter involved in municipal bankruptcy proceedings, to be accepted in lieu of written consents from the holders of such exchanged securities, it being considered that there is no higher evidence of the willingness of a creditor to accept a plan of composition than his actual acceptance of securities offered in exchange under such plan of composition, provided that the combined actual exchanges and written consents shall aggregate at least the amount of 51 percent of the total debt affected by the plan in order to permit a petition to be filed and at least 60% percent in order to permit its confirmation. 3. To permit an extension of the expiration date of the Municipal Bankruptcy Act from June 30, 1940, to June 30, 1942. The committee held hearings on these amendments and determined to report the bill favorably; thereafter an objection was filed, and, in the interest of giving all parties full opportunity to be heard, the report was withheld and a notice given of a rehearing. At such rehearing, the holder of only $5,000 of bonds appeared in opposition, and this holder merely objected to specific terms of a particular refunding plan which had proceeded on a voluntary basis. These objections proved to be of a nature properly a matter for consideration by the Federal judge in determining whether the plan of composition, if involved in bankruptcy proceedings, should be confirmed as fair and equitable. This witness admitted there was no objection to permitting counties to participate under the terms of the Municipal Bankruptcy Act and directed all objections to a specific plan and the testimony revealed that the witness was not entirely familiar with the circumstances of the particular county in which he was interested. The only objection was as stated above. At both hearings numerous public officials, and others familiar with the necessity of this legislation, appeared and urged a favorable report. Facts were submitted which sustained the conclusions of the proponent witnesses. It is the opinion of the subcommittee that H. R. 6505, and the proposed amendments offered by Mr. Andrews, for himself and for Mr. Pepper, is legislation well within the limits prescribed by the Constitution and that the objectives sought thereby will serve the public interest and represents sound public policy. The legal conclusion is supported by language used in the opinion of the Federal courts passing upon the Municipal Bankruptcy Act as it now exists. The evidence submitted at the hearings clearly shows that an emergency exists which requires immediate remedial legislation in the form proposed by the amendments to H. R. 6505; and, therefore, this subcommittee recommends early and favorable consideration of H. R. 6505 and the proposed amendments thereto. Respectfully submitted. JAMES H. HUGHES. AMENDING THE MUNICIPAL BANKRUPTCY ACT 3 After the subcommittee made its report, attention was called to a further desirable procedural amendment in order to give full effect to the amendments considered by the subcommittee. There seems to be no doubt as to the ultimate holding of the courts on the particular subject in question; but, in order to avoid the necessity of tedious and expensive litigation before the desired results can be obtained, it is considered important to specifically provide that the terms of plans of composition, partially completed by voluntary exchanges, shall be considered in bankruptcy proceedings as if no voluntary exchanges had taken place. The situation sought to be clarified is as follows: Debt adjustments in many communities were initiated on a basis of voluntary participation. Bankruptcy relief was not available in many instances, the original act not having been enacted at the time many of the plans of composition were initiated. The taxing units were unable to pay their debts as they were scheduled to mature prior to the making of voluntary exchanges; but, because of the degree of participations in the proposed settlement programs, conditions steadily and greatly improved and clarified. However, there still remains the serious problem of dealing with a small but militant minority of creditors. The addition of the words nor on the ground that partial completion of such original plan has made it possible for the petitioner to mect its debts as they mature: Provided, That such inability to meet its debts existed prior to the time such original plan was partially completed. is merely for the purpose of specifically providing that plans of composition, and the requirements as to essential proof thereunder, shall speak as of the time before exchanges of securities were made on a voluntary basis. This objective is essentially fair because any present ability of a previously financially embarassed taxing unit to pay its debts is primarily due to improved fiscal conditions which resulted from the voluntary exchanges made by cooperating creditors. |