(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Section 77 was originally enacted in March, 1933, 47 Stat. 1474, 11 U.S.C. sec. 205 (1934).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 un

til 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.III.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 Amend. ments to the Railroad Bankruptcy Act," 21 St. Louis L.Rev. 317 (1936).

Act of Apr. 9, 1948, P.L. 478, 80th Cong., 62 Stat. 167,*
11 U.S.C.A. § 208

(a) Notwithstanding any other provision of law

(1) with respect to any plan of reorganization or modified plan of reorganization approved by the Interstate Commerce Commission under the provisions of section 77 of the Bankruptcy Act, as amended, subsequent to the effective date of this Act, it shall be the duty of the Commission, upon petition of any party to the proceeding filed at any time more than eighteen months after certification by the Commission to the court of the plan or of an order disposing of a like petition, but before any order confirming the plan shall have been entered, or, such an order having been entered, if an appeal from said order is pending on said date in a circuit court of appeals or the matter is pending in the Supreme Court on a petition to review any order of a circuit court of appeals* dealing with said order of confirmation or the time within which to make such appeal or to file such petition has not expired, to report to the court in which consideration of such plan is then pending, any changes, facts, or developments which have occurred since the approval of such plan by the Commission, which were not provided for in the plan, and which in the opinion of the Commission make it necessary or expedient for the Commission to reexamine or reconsider and, if necessary, to revise such plan in order to insure that such plan, if consummated and put into effect, shall then, in the opinion of the Commission, be fair and equitable and in the public interest and compatible with the provisions of this section and section 77 of the Bankruptcy Act, as amended. Upon the filing of any such report by the Commission with the court, the court shall remand the plan to the Commission for such reexamination, reconsideration, and possible revision;

(2) if, with respect to any plan of reorganization or modified plan of reorganization approved by the Commission subsequent to the effective date of this Act, the court before which such plan is then pending, for approval or confirmation, no order of confirmation having been entered, or, such an order having been entered, if an appeal from said order is pending on said date in a circuit court of appeals or the matter is pending in the Supreme

*This edition of the Bankruptcy Act follows the form of the statutes at large, and not the form of the United States Code. The same practice is followed with reference to this related legislation, which is not a part of the Bankruptcy Act. References to the Court of Appeals in the Bankruptcy Act were modernized by the amendment of July 7, 1952, P.L. 456, 82d Cong., 2d Sess., but no change was made in this statute.

Court on a petition to review any order of a circuit court of appeals dealing with said order of confirmation or the time within which to make such appeal or to file such petition has not expired, upon petition of any party to the proceeding and either with or without a hearing, shall find that changes, facts, or developments have occurred since the approval of such plan by the Commission which were not provided for in the plan and which make it necessary or expedient, in the opinion of the court, that the Commission reexamine and reconsider and revise such plan in order to insure that the plan consummated and put into effect shall then, in the opinion of the court and the Commission, be fair and equitable and in the public interest and compatible with the provisions of this section, and section 77 of the Bankruptcy Act, as amended, the court shall return the plan to the Commission for such reexamination, reconsideration and possible revision;

(3) with respect to any plan of reorganization or modified plan of reorganization which, on the date of enactment of this Act, is before any district court for approval or confirmation, no order of confirmation having been entered, or, such order having been entered, if an appeal from said order is pending in a circuit court of appeals or the matter is pending in the Supreme Court on a petition to review any order of a circuit court of appeals dealing with said order of confirmation or the time within which to make such an appeal or to file such petition has not expired, it shall be the duty of the Commission, upon petition of any party to the proceeding, to report to such court any changes, facts, or developments which have occurred since December 31, 1939, which were not provided for in the plan and which, in the opinion of the Commission, make it necessary or expedient for the Commission to reexamine or reconsider and, if necessary, to revise such plan in order to insure that if consummated and put into effect, such plan shall then, in the opinion of the Commission, be fair and equitable and in the public interest and compatible with the provisions of this section and section 77 of the Bankruptcy Act, as amended. Upon the filing of any such report by the Commission with the court, the court shall remand the plan to the Commission for such reexamination, reconsideration, and possible revision;

(4) in the event of the return of a plan to the Commission pursuant to the provisions of this subsection (a), the proceedings with respect thereto shall be governed by the provisions of subsection (d) of section 77 of the Bankruptcy Act, as amended;

(5) each petition filed under the provisions of paragraph (1) or paragraph (3) of this subsection (a) shall be filed with the

court before which is pending the plan which is the subject of the petition and such petition shall be referred by the court to the Commission. Upon the filing of such petition with the court all further proceedings for confirmation of the plan shall be suspended pending disposition of the petition by the Commission and certification of its action thereon to the court.

(b) As to any plan so returned to the Commission by the court, the Commission, upon further hearing at which all parties may appear and submit evidence as to prospective earning power and other relevant facts, and upon consideration of all changes, facts, and developments which have occurred since the date of approval of the plan by the Commission (or which have occurred since December 31, 1939, in the case of plans which on the date of enactment of this Act were pending before, but had not been confirmed by, the court by order which shall have become final), including, without limitation, for such period total railway operating revenues, operating expenses and other charges, net earnings, the full effect of amortization deductions on earnings of past and future years, improvements to property, the effect of released collateral through past or future payments of loans, cash and net current assets, retirements and purchases of debt, including retirements and purchases at a discount that have been made or that can reasonably be made, adjustment and reduction of interest rates on outstanding debt that may be made, shall, in a supplemental report and order, modify, or refuse to modify, any plan which it has approved, stating the reasons for such modification or for its refusal to modify the plan. The Commission, if it modifies the plan, shall certify the modified plan to the court, together with a transcript of the proceeding before it and a copy of its report and order approving the modified plan. Thereafter proceedings upon the plan shall be governed by the provisions of subsection (e) of section 77 of the Bankruptcy Act, as amended, and of this section. If the Commission refuses to modify the plan, it shall transmit to the court a copy of its report and order, together with a transcript of the proceedings before it. Thereafter, if the court shall find that the refusal of the Commission to modify the plan is based on sufficient findings and is supported by the record, the proceeding upon the plan shall continue as if the plan had not been returned to the Commission; otherwise the court shall return the plan to the Commission for further consideration. Upon such consideration, the Commission shall again certify the plan to the court with such modifications, if any, as it may find necessary, and thereafter further proceedings upon the plan shall be as provided in said subsection (e) and in this section.