proved and authorized under the provisions of this section or the taking of any such actions, shall be, and they hereby are, relieved from the operation of all restraints, limitations, and prohibitions of law, Federal, State, or municipal, insofar as may be necessary to enable them to make and carry into effect the alteration or modification so approved and authorized in accordance with the conditions and with the amendments, if any, imposed by the Commission. Any power granted by this section to any carrier shall be deemed to be in addition to and in modification of its powers under its corporate charter or under the laws of any State. The provisions of this section shall not affect in any way the negotiability of any security of any carrier or of the obligation of any carrier which has assumed liability in respect thereto.

(6) The Commission shall require periodical or special reports from each carrier which shall hereafter secure from the Commission approval and authorization of any alteration or modification under this section, which shall show, in such detail as the Commission may require, the action taken by the carrier in the making of such alteration or modification.

(7) The provisions of this section are permissive and not mandatory and shall not require any carrier to obtain authorization and approval of the Commission hereunder for the making of any alteration or modification of any provision of any of its securities or of any class thereof or of any provision of any mortgage, indenture, deed of trust, corporate charter, or other instrument, which it may be able lawfully to make in any other manner, whether by reason of provisions for the making of such alteration or modification in any such mortgage, indenture, deed of trust, corporate charter, or other instrument, or otherwise: Provided, That the provisions of paragraph (2) of section 20a, if applicable to such alteration or modification made otherwise than pursuant to the provisions of this section, shall continue to be so applicable.

(8) The provisions of paragraph (6) of section 20a, except the provisions thereof in respect of hearings, shall apply to applications made under this section. In connection with any order entered by the Commission pursuant to paragraph (2) hereof, the Commission may from time to time, for good cause shown, make such supplemental orders in the premises as it may deem necessary or appropriate, and may by any such supplemental order modify the provisions of any such order, subject always to the requirements of said paragraph (2).

(9) The provisions of subdivision (a) of section 14 of the Securities Exchange Act of 1934 shall not apply to any solicitation in connection with a proposed alteration or modification pursuant to this section.

(10) The Commission shall have the power to make such rules and regulations appropriate to its administration of the provisions of this section as it shall deem necessary or desirable.

(11) Any issuance of securities under this section which shall be found by the Commission to comply with the requirements of paragraph (2) of section 20a shall be deemed to be an issuance which is subject to the provisions of section 20a within the meaning of section 3(a) (6) of the Securities Act of 1933, as amended. Section 5 of said Securities Act shall not apply to the issuance, sale, or exchange of certificates of deposit representing securities of, or claims against, any carrier which are issued by committees in proceedings under this section, and said certificates of deposit and transactions therein shall, for the purposes of said Securities Act, be deemed to be added to those exempted by sections 3 and 4, respectively, of said Securities Act.

(12) The provisions of sections 1801, 1802, 3481, and 3482 of the Internal Revenue Code and any amendments thereto, unless specifically providing to the contrary, shall not apply to the issuance, transfer, or exchange of securities or the making or delivery of conveyances to make effective any alteration or modification effected pursuant to this section.

(13) The Commission shall not approve an application filed under this section by any carrier while in equity receivership or in process of reorganization under section 77 of the Bankruptcy Act, as amended, except that the Commission may approve an application filed by a carrier which, on the date of enactment of this Act, is in equity receivership and with respect to which no order confirming the sale of the carrier's property has been entered, or is in process of reorganization under section 77 and with respect to which no order confirming a 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, if prior to the filing of such application with the Commission such carrier shall have applied for and been granted permission to file such application by the district judge before whom the equity receivership

or section 77 proceeding is pending. Any such carrier applying for permission to file such application shall file with the court. as a prerequisite to the granting of such permission (1) a copy of the proposed application, (2) a copy of the proposed plan of alteration or modification of its securities, and (3) assurances satisfactory to the court of the acceptance of such plan from holders of at least 25 per centum of the aggregate amount of all securities, including not less than 25 per centum of the aggregate amount of all creditors' claims, affected by such plan. An order of a district judge granting or withholding such permission shall be final and shall not be subject to review. Upon granting of such permission, such proceeding, so far as it relates to a plan of reorganization, shall be suspended until the Commission shall have notified the court that (a) the application filed by such carrier under this section has been dismissed or denied by the Commission or withdrawn, (b) the Commission has approved and authorized an alteration or modification under this section with respect to the securities of such carrier, or (c) twelve months have elapsed since the filing of such application and no such alteration or modification has been approved and authorized by the Commission. Upon receipt by the court of notification that such application has been dismissed or denied or withdrawn or that twelve months have elapsed and no alteration or modification has been approved and authorized, the equity receivership or section 77 proceeding shall be resumed as though permission to file application under this section had not been granted. Upon receipt by the court of notification that the Commission has authorized and approved such alteration or modification of the carrier's securities under this section as, in the judgment of the court, makes further receivership or section 77 proceeding unnecessary, the court shall enter an order restoring custody of the property to the debtor, and making such other provision as may be necessary to terminate the equity receivership or section 77 proceeding.

"One salient difference between it (a section 77 plan) and a section 20b modification plan is that under the latter the sacrifices to be made by each class of security holders would be no greater than would be necessary to meet the particular problems involved. There would be omitted the total denial of continued participation to stockholders which has been an outstanding feature of section 77 proceedings but which has contributed little to the future financial health of the debtor.

"Affirmatively, the utilization of voluntary modification procedure rather than section 77 to accomplish a financial rearrangement would probably result in a rise in the market price of the carrier's securities; and this increase, in fact, might result from the mere decision of the management to proceed under section 20b. Such market behavior is, of course, the exact opposite of the pattern which security prices follow when section 77 pro

ceedings are initiated. In reorganizations, the long drought is certain, the manner in which security holders are to be treated is obscure and, to the extent that such treatment is foreseeable, it is likely to seem highly unfavorable. Voluntary modification offers hope that the drought will be escaped, and in addition, all features of the plan are made known at the outset and are likely to be considered generally beneficial." Hand and Cummings "The Railroad Modification Law," 48 Col.L.Rev. 689, 701 (1948).

The preamble to P.L. 478 p. 147, ante, would seem formally applicable to section 3, but in substance seems applicable only to section 2. There is no section 1, unless the preamble be given that designation by inference from its position in P.L. 478.

The act of 1948 is a sequel to Chapter XV and the Reed-Wheeler Bill, S. 1253, 79th Cong., vetoed by the President August 13, 1946.

Chapter XV, (Bankruptcy Act, sections 700-755), was enacted July 28, 1939, 53 Stat. 1134, providing for what was designed to be an accelerated procedure involving approval by the Interstate Commerce Commission and by a special three judge court of a "plan of adjustment". Section 727 provided that unless the plan of adjustment be confirmed by the special court within one year from the date of the filing of the petition, the proceedings should be dismissed, unless for good cause shown the court be satisfied that immediate confirmation is in prospect. Section 755 provided that the jurisdiction conferred by this chapter should not be exercised after July 31, 1940, except in proceedings initiated before that date. No further legislation of this kind was passed until Oct. 16, 1942, when a similar chapter of like number was reenacted, limited to proceedings initiated by Nov. 1, 1945, 56 Stat. 787.

The Reed-Wheeler Bill would have substantially reenacted Chapter XV and would also have amended section 77 to achieve the general purpose of section 3 of the Act of 1948-to promote reconsideration of reorganization plans already formulated under which shareholders and other prior interests had been either eliminated or greatly reduced at a time when the financial situation of the railroads in question was much worse than in midsummer 1946. Railroads earning their fixed charges for the seven years 1939–1945 inclusive (after excluding certain deductions from earnings made and allowable for tax purposes) might propose new or revised plans of reorganization during a period of eighteen months, if their gross operating revenues exceeded $50,000,000 in any of the years 1942-1944 inclusive, or if they were debtors in a proceeding with another carrier whose revenues reached that amount. Such roads were to remain under the jurisdiction of the bankruptcy courts while pending proceedings under section 77 were suspended. See Conference Report, 92 Cong. Rec., 10466, July 27, 1946.

See generally Moore, Reorganization of Railroad Corporations (1941); Railroad Reorganization: A Symposium, 7 Law & Contemp. Prob. 365 (1940); McSwaine, A Decade of Reorganization under Section 77 of the Bankruptcy Act, 56 Harv.L.Rev. 1037 (1943); Bourne, Findings of "Value" in Railroad Reorganizations, 51 Yale L.J. 1057 (1942); Note, Valuation and Capitalization of Railroads in Reorganization, 54 Harv.L.Rev. 655 (1941); Comment, Effect of Consolidated Rock Decision on Railroad Reorganizations under Section 77, 51 Yale L.J. 967 (1942); Meck, Railroad Leases and Reorganization, 49 Yale L.J. 1401 (1940); Proof of Damages in Rejection of Long Term Leases under 77b, A4 Corp. Reorg. & Am.Bky. Rev. 131 (1941).

Secs. 78-80. Unconstitutional. See note following section 83 post.

Chapter IX

Formerly designated chapter X, the present designation being specified by section 3 of the Chandler Act, 52 Stat. 939 (1938).

READJUSTMENT OF DEBTS OF AGENCIES OR
INSTRUMENTALITIES

Sec. 81. (11 U.S.C. § 401.) Additional Jurisdiction

This Act and proceedings thereunder are found and declared to be within the subject of bankruptcies and, in addition to the jurisdiction otherwise exercised, courts of bankruptcy shall exercise original jurisdiction as provided in this chapter for the composition of indebtedness of, or authorized by, any of the agencies or instrumentalities hereinafter named, payable (a) out of assessments or taxes, or both, levied against and constituting liens upon property in any of said agencies or instrumentalities, or (b) out of property acquired by foreclosure of any such assessments or taxes or both, or (c) out of income derived by such agencies or instrumentalities from any income-producing property, whether or not secured by a lien upon such property: (1) Drainage, drainage and levee, reclamation, water, irrigation, or other similar districts, commonly designated as agricultural improvement districts or local improvement districts, organized or created for the purpose of constructing, improving, maintaining, and operating certain improvements or projects devoted chiefly to the improvement of lands therein for agricultural purposes; or (2) local improvement districts, such as sewer, paving, sanitary, or other similar districts, organized or created for the purposes designated by their respective names; or (3) local improvement districts, such as road, highway, or other similar districts, organized or created for the purpose of grading, paving, or otherwise improving public streets, roads, or highways; or (4) public-school districts or public-school authorities organized or created for the purpose of constructing, maintaining, and operating public schools or publicschool facilities; or (5) local improvement districts, such as port, navigation, or other similar districts, organized or created for the purpose of constructing, improving, maintaining, and operating ports and port facilities; or (6) incorporated authorities, commissions, or similar public agencies organized for the purpose of constructing, maintaining and operating revenue-producing enterprises; or (7) any county or parish or any city, town, village, borough, township, or other municipality: Provided, however, That if any provision of this chapter or the application thereof to any such agency or district or class thereof or to any circum