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74TH CONGRESS. SESS. I. CHS. 808, 809. AUGUST 29, 1935.

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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.

965

August 29, 1935.
[H. R. 7858]
Public, No. 396.]

Bankruptcy Act of 1898; amendment. Vol. 48, p. 912.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That subdivision (1) of subsection (e) of section 77B of the Act of July 1, 1898, entitled "An Act to establish a uniform system of bankruptcy Corporate reorgani throughout the United States", as amended, be, and is hereby, amended to read as follows:

zations.

Plan of reorganization; acceptance and

(e) (1) A plan of reorganization shall not be confirmed until it has been accepted in writing, whether before or after the filing confirmation. of the petition or answer under this section, and such acceptance shall have been filed in the proceeding by or on behalf of creditors holding two-thirds in amount of the claims of each class whose claims have been allowed and would be affected by the plan and by or on behalf of stockholders of the debtor holding a majority

Classes of creditors

ers, etc.

of the stock of each class: Provided, however, That such acceptance Prorison. shall not be requisite to the confirmation of the plan by any creditor whose acceptance not or class of creditors, (a) whose claims are not affected by the plan, requisite. or (b) if the plan makes provision for the payment of their claims in cash in full, or (c) if provision is made in the plan for the protection of the interests, claims, or liens of such creditor or class of creditors in the manner provided in subdivision (b), clause (5), of this section: And provided further, That such acceptance shall Classes of stockhold not be requisite to the confirmation of the plan by any stockholder or class of stockholders (1) if the judge shall have determined either that the debtor is insolvent, or that the interests of such stockholder or stockholders will not be affected by the plan, or (2) if provision is made in the plan for the protection of the interests of such stockholder or class of stockholders in the manner provided in subdivision (b), clause (4), of this section. With such acceptance there shall be set forth, verified in such manner as the judge shall require, what, if any, contracts of the debtor are executory in whole or in part, and what unexpired leases have been rejected and surrendered. With Statement of claims such acceptance there shall be filed a statement, verified in such transferred by persons manner as the judge shall require, showing what, if any, claims and accepting plan."

Debtor's contracts and leases.

and shares of stock

966

74TH CONGRESS. SESS. I. CHS. 809, 810. AUGUST 29, 1935.

statement doemed impractical.

United States as a creditor.

or reject plan.

shares of stock have been purchased or transferred by those accepting the plan after the commencement or in contemplation of the proceeding, and the circumstances of such purchase or transfer: Waiver of filing when Provided, however, That if the judge is satisfied that by reason of the number of securities outstanding and the extent of the public dealing therein the preparation of such a statement would be imprac tical, he may direct that it be not filed. If the United States of America is a creditor or stockholder, the interests or claims thereof Authority to accept shall be deemed to be affected by the plan, and the Secretary of the Treasury is hereby authorized to accept or reject a plan in respect of the interests or claims of the United States. If, in any reorganization proceeding under this section, the United States is a creditor on claims for taxes or customs duties (whether or not the United States has any other interest in, or claim against, the debtor, as creditor or stockholder), no plan which does not provide for the payment thereof shall be confirmed by the judge except upon the acceptance of a lesser amount by the Secretary of the Treasury certified to the court: Provided, That if the Secretary of the Treasury Presumption of ap shall fail to accept or reject a plan for more than ninety days after receipt of written notice so to do from the court to which the plan has been proposed, accompanied by a certified copy of the plan, his consent shall be conclusively presumed.

Proviso.

proval.

Approved, August 29, 1935.

74TH CONGRESS HOUSE OF REPRESENTATIVES 1st Session

REPORT No. 1366

TO AMEND SECTION 77B OF THE BANKRUPTCY ACT

JUNE 26, 1935.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. SUMNERS of Texas, from the Committee on the Judiciary, submitted the following

REPORT

[To accompany H. R. 7858]

The Committee on the Judiciary, to whom was referred the bill (H. R. 7858) 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 an amendment, with the recommendation that the bill, as amended, do

pass.

The committee amendment is as follows: Strike out all after the enacting clause and insert the following:

That subdivision (1) of subsection (e) of section 77B of the Act of July 1, 1898, entitled "An Act to establish a uniform system of bankruptcy throughout the United States", as amended, be, and is hereby, amended to read as follows:

"(e) (1) A plan of reorganization shall not be confirmed until it has been accepted in writing, whether before or after the filing of the petition or answer under this section, and such acceptance shall have been filed in the proceeding by or on behalf of creditors holding two-thirds in amount of the claims of each class whose claims have been allowed and would be affected by the plan and by or on behalf of stockholders of the debtor holding a majority of the stock of each class: Provided, however, That such acceptance shall not be requisite to the confirmation of the plan by any creditor or class of creditors (a) whose claims are not affected by the plan, or (b) if the plan makes provision for the payment of their claims in cash in full, or (c) if provision is made in the plan for the protection of the interests, claims, or liens of such creditor or class of creditors in the manner provided in subdivision (b), clause (5), of this section: And provided further, That such acceptance shall not be requisite to the confirmation of the plan by any stockholder or class of stockholders (1) if the judge shall have determined either that the debtor is insolvent, or that the interests of such stockholder or stockholders will not be affected by the plan, or (2) if provision is made in the plan for the protection of the interests of such stockholder or class of stockholders in the manner provided in subdivision (b), clause (4), of this section. With such acceptance there shall be set forth, verified in such manner as the judge shall require, what, if any, contracts of the debtor are executory in whole or in part, and what unexpired leases have been rejected and surrendered. With such acceptance there shall be filed a statement, verified in such manner as he judge shall

79-956-77 - pt. 1 - 31

2

AMEND SECTION 77B OF THE BANKRUPTCY ACT

require, showing what, if any, claims and shares of stock have been purchased or transferred by those accepting the plan after the commencement or in contemplation of the proceeding, and the circumstances of such purchase or transfer: Provided, however, That if the judge is satisfied that by reason of the number of securities outstanding and the extent of the public dealing therein the preparation of such a statement would be impractical, he may direct that it be not filed. If the United States of America is a creditor on claims for taxes, the claims thereof shall be deemed to be affected by the plan, and the Secretary of the Treasury is hereby authorized to accept a plan in respect of such claims; and no plan which does not provide for the payment thereof shall be confirmed by the judge except upon the acceptance of a lesser amount by the Secretary of the Treasury certified to the court: Provided, That, if the Secretary of the Treasury shall fail to accept or reject a plan for more than sixty days after written notice so to do his consent shall be conclusively presumed.

This amendment clarifies the rights of the Government with refer ence to tax claims against corporations reorganizing under section 77B of the Bankruptcy Act. It was introduced at the request of the Treasury Department. The Treasury Department has called the the attention of your committee to the fact that whereas claims for taxes have priority under the general Bankruptcy Act, the language of the reorganization section is being interpreted in the lower courts (the Supreme Court not having passed on the point to date) as placing the Government in the status merely of a general creditor with regard to claims for taxes. It is apparent that under these circumstances unless remedial amendment is speedily made to the statute the Government stands to lose large sums of tax moneys which the Treasury Department representatives estimated to your committee would aggregate several millions of dollars.

The amendment as reported by the committee provides that no plan of reorganization shall be confirmed by the court which does not contain provisions for payment of all tax indebtedness to the Govern ment, unless the Secretary of the Treasury shall accept a lesser amount. This will prevent the corporate reorganization section of the Bankruptcy Act becoming a resort for corporations seeking to evade payment of taxes justly due the Government while at the same time it will permit the Secretary of the Treasury to accept compromises where corporations are unable to pay the full amount due and thus will make it possible to effectuate reorganization plans in cases where otherwise the plan would fail with consequent liquidation of business, loss of employment, and failure of the purposes of the Reorganization Act.

In order that reorganizations may not be delayed indefinitely in case the Secretary of the Treasury should fail to act it is provided that his failure to accept or reject the plan within 60 days after notice to him shall establish a conclusive presumption of his assent. A communication from the Secretary of the Treasury to the Speaker of the House requesting amendatory legislation follows:

TREASURY DEpartment,
Washington, April 22, 1935.

The SPEAKER OF THE HOUSE OF REPRESENTATIVES,

SIR: I wish to call your attention to the desirability of amending section 77B of the Bankruptcy Act, as amended, so as to specifically provide that, where the United States is a creditor or stockholder of a corporation seeking reorganization, the plan of reorganization shall not be confirmed by the court without the acceptance thereof by the Secretary of the Treasury as authorized by the last sentence of subdivision (e) (1) of section 77k

It is believed that Congress, b reposing in the Secretary of the Treasury authority to accept or reject a plan of reorganization in respect of the interests or claims of the United States, intended to provide a method of protecting the

AMEND SECTION 77B OF THE BANKRUPTCY ACT

3

Government's interests. The courts, however, have indicated an inclination to class the United States with the general creditors. The result is that other general creditors can secure confirmation by the court of a plan of reorganization which has not been accepted by the Secretary of the Treasury.

In order to remove the difficulties that are being experienced through confirmation by the courts of plans of reorganization without the acceptance thereof by the Secretary of the Treasury in respect of the interests or claims of the United States, the Treasury recommends that section 77B (e) (1) of the Bankruptcy Act be amended in accordance with the attached draft, thereby accomplishing what, it is believed, Congress intended; namely, that no plan should be confirmed by the court which does not protect the rights of the United States.

The proposed amendment preserves the rights of the United States by providing that no plan of reorganization shall be confirmed by the court unless the interests or claims of the United States be liquidated or provision be made for the liquidation thereof within a definite period of time after confirmation or the Secretary of the Treasury accept the plan on behalf of the United States.

Very truly yours,

H. MORGENTHAU, Secretary of the Treasury.

In compliance with clause 2a of Rule 13, there is printed below existing law in roman, matter proposed to be stricken out inserted in black brackets and new matter proposed to be inserted printed in italics:

That subdivision (1) of subsection (e) of section 77B of the Act of July 1, 1898, entitled "An Act to establish a uniform system of bankruptcy throughout the United States", as amended, be, and is hereby, amended to read as follows:

"(e) (1) A plan of reorganization shall not be confirmed until it has been accepted in writing, whether before or after the filing of the petition or answer under this section, and such acceptance shall have been filed in the proceeding by or on behalf of creditors holding two-thirds in amount of the claims of each class whose claims have been allowed and would be affected by the plan and by or on behalf of stockholders of the debtor holding a majority of the stock of each class: Provided, however, That such acceptance shall not be requisite to the confirmation of the plan by any creditor or class of creditors (a) whose claims are not affected by the plan, or (b) if the plan makes provision for the payment of their claims in cash in full, or (c) if provision is made in the plan for the protection of the interests, claims, or liens of such creditor or class of creditors in the manner provided in the subdivision (b), clause (5), of this section: And provided further, That such acceptance shall not be requisite to the confirmation of the plan by any stockholder or class of stockholders (1) if the judge shall have determined either that the debtor is insolvent, or that the interests of such stockholder or stockholders will not be affected by the plan, or (2) if provision is made in the plan for the protection of the interests of such stockholder or class of stockholders in the manner provided in subdivision (b), clause (4), of this section. With such acceptance there shall be set forth, verified in such manner as the judge shall require, what, if any, contracts of the debtor are executory in whole or in part, and what unexpired leases have been rejected and surrendered. With such acceptance there shall be filed a statement, verified in such manner as the judge shall require, showing what, if any, claims and shares of stock have been purchased or transferred by those accepting the plan after the commencement or in contemplation of the proceeding, and the circumstances of such purchase or transfer: Provided, however, That if the judge is satisfied that by reason of the number of securities outstanding and the extent of the public dealing therein the preparation of such a statement would be impractical, he may direct that it be not filed. If the United States of America is a creditor or stockholder, the Secretary of the Treasury is hereby authorized to accept or reject a plan in respect of the interests or claims of the United States.] If the United States of America is a creditor on claims for taxes, the claims thereof shall be deemed to be affected by the plan, and the Secretary of the Treasury is hereby authorized to accept a plan in respect of such claims; and no plan which does not provide for the payment thereof shall be confirmed by the Judge except upon the acceptance of a lesser amount by the Secretary of the Treasury certified to the court; Provided that, if the Secretary of the Treasury shall fail to accept or reject a plan for more than sixty days after written notice so to do his consent shall be conclusively presumed."

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