delivered the opinion of the Court.
The questions are whether respondent’s petition for an arrangement of its unsecured debts under Chapter XI of the Bankruptcy Act should be dismissed because the relief obtainable under that chapter is inadequate, and whether the Securities and Exchange Commission is entitled to raise and litigate that question by intervention and appeal.
Respondent, a New Jersey corporation doing business in New York as owner of and manager of real estate invest- •
Before maturity of the first mortgage certificates, respondent and the Trinity Company joined in proposing to certificate holders a plan for the modification of the
The district court found that the petition was properly filed
2
under § 322 of Chapter XI of the Bankruptcy Act,
The Court of Appeals held that the proceeding to secure approval of the arrangement, embodied in the plan proposed by respondent, was properly brought under Chapter XI of the Bankruptcy Act; that the intervention by the Commission was not authorized by any provision of the Bankruptcy Act and that it had no interest affected by the proceeding under that chapter entitling it to intervene under the applicable rules controlling intervention in the federal courts, and that'consequently it was not aggrieved by the order appealed from and so was not entitled to maintain its appeal.
The Commission argues that Chapter X of the Bankruptcy Act prescribes the exclusive procedure for reorganization of a large corporation having its securities
To this it is answered, as the Court of Appeals held, that respondent,, although a large corporation with its securities widely distributed in the hands of the public, is nevertheless within the literal terms of Chapter XI, which unqualifiedly authorizes a debtor to petition under that chapter for an arrangement with respect to its unsecured indebtedness, and that the district court was accordingly bound to entertain the petition, however desirable it might be that the reorganization should proceed
Chapter XI provides a summary procedure by which a debtor may secure judicial confirmation of an “arrangement” of his unsecured debts. The debtor, who is defined as a “person who could become a bankrupt under § 4 of the Act,” §306 (3), may, according to §§4 and 1 (23), be any person (which includes corporations), except a municipal, railroad, insurance or banking corporation or a building and loan association. The debtor files his original voluntary petition for an arrangement in such a court as would have jurisdiction of a petition in ordinary bankruptcy 4 and must file with the petition the proposed arrangement. §§ 322, 323. An arrangement is defined as “any plan of a debtor for the settlement, satisfaction, or extension of the time of payment of his unsecured debts upon any terms.” § 306 (1). The unsecured debtors may be treated generally or in classes. §§ 356, 357.
It is evident that the language of the sections to which we have referred in terms confers on the court jurisdiction of a petition for an arrangement, which the present petition is, filed by a debtor, which the respondent is, in the technical sense that it confers on the court power to make orders in the cause which are not open to collateral attack. See
Pennsylvania
v.
Williams,
While we do not doubt that in general, as will presently appear more in detail, the two chapters were specifically devised to afford different procedures, the one adapted to the reorganization of corporations with complicated debt structures and many stockholders, the other to composition of debts of small individual business and corporations with few stockholders, we find in neither chapter any definition or classification which would enable us to say that a corporation is small or large, its security holders few or many, or that its securities are “held by the public,” so as to place the corporation exclusively within the jurisdiction of the court under one chapter rather than the other. But granting the jurisdiction of the court, the question remains of the propriety, in the circumstances, of its order retaining jurisdiction, and of the extent of its duty to go forward with the proceeding under Chapter XI in the face of the contention that Chapter X alone affords a remedy adequately protecting the public and private interests involved. The answer
Before the enactment of § 77B of the Bankruptcy Act, 48 Stat. 911, 912, the bankruptcy mechanism was designed for the final liquidation of the bankrupt’s estate, except to the extent only that a compromise with creditors was authorized by §§ 12, 74. Bankruptcy afforded no facilities for corporation reorganization, which, in consequence, could be effected only through resort to the equity receivership with its customary mortgage foreclosures and its attendant paraphernalia of creditors’ and security holders’ committees, and of rival reorganization plans. Lack of knowledge and control by the court of the conditions attending formulation of reorganization plans, the inadequate protection of widely scattered security holders, the frequent adoption of plans which favored management at the expense of other interests, and which afforded the corporation only temporary respite from financial collapse, so often characteristic of reorganizations in equity receiverships, led to the enactment of 77B. 5
The creation of the Securities and Exchange Commission, specially charged by various statutes with th’e protection of the interests of the investing public,
6
and
If the judge finds the plan presented worthy of consideration he may refer it to the Commission for report and must do so where the liabilities of the debtor, as in the present case, exceed $3,000,000, § 172. When the plan is submitted to creditors after approval by the judge it is accompanied by the report of the Commission and the opinion of the judge approving the plan, § 175. The Commission with the approval of the court is authorized to participate generally in the proceedings as a party, and it is its duty to do so upon request of the court, § 208.
No comparable safeguards are found in Chapter XI.
8
Every phase of the procedure bearing on the administration of the estate and the development of the arrangement is under the control of the debtor. The process of formulating an arrangement and the solicitation of consent of creditors, sacrifices to speed and economy every safeguard, in the interest of thoroughness and disinterest
There are no provisions for an independent study of the debtor’s affairs by court or trustee, or for advice by them to creditors with respect to their rights or interests in advance of their consent to the arrangement. Committees of the creditors are permitted, §§ 334, 338, but there is no restriction on or supervision over their selection and conduct as in Chapter X. The arrangement may be consummated at the conclusion of a single creditors’ meeting. The court in passing upon the arrangement, is without the benefit of investigation and study by the trustee or Commission, which Congress has required in reorganization proceedings under Chapter X, and is then faced with the fact that a majority of the creditors have already accepted the plan.
Since the sections under Chapter XI already considered admit of an “arrangement” only with respect to unsecured creditors without alteration of the relations of any other
Respondent suggests that the proposed arrangement may be taken to satisfy the test of the
Boyd
case since under it the certificate holders would receive a new guarantee, enforeible as to principal notwithstanding the New York moratorium law, in place of the old guarantee to which that law applies. See
Honeyman
v.
Hanan,
Confirmation of an arrangement follows a finding of the court that it is for the best interests of the creditors, §366 (2). Here determination of what is in the “best interest of the creditors” depends on the answer to the question whether the stockholders should be eliminated or the creditors should receive some substitute compensation, and whether that compensation is fair and equitable. In a situation like the present it is in the best interests of the creditors that these questions should be answered in a Chapter X proceeding.
While this means that arrangements of unsecured debts of corporations, like respondent, may not be “in the best interests of creditors” and “feasible” under Chapter XI, it does not mean that there is no scope for application of that chapter in many cases where the debtor’s financial business and corporate structure differ from respondent’s. This is especially the case with small individual or corporate business where there are no public or private interests involved requiring protection by the procedure and remedies afforded by Chapter X. In cases where subordinate creditors or the stockholders are the managers of its business, the preservation of going-concern value through their continued management of the business may compensate for reduction of the claims of the prior creditors without alteration of the management’s interests, which would otherwise be required by the Boyd case. See Case v. Los Angeles Lumber Products Co., supra, 121, 122.
Under §' 146 (2) a petition may not be filed under Chapter X unless the judge is satisfied that “adequate relief” would not be obtainable under Chapter XI.
A bankruptcy court is a court of equity, § 2, 11 U. S. C. §11, and is guided by equitable doctrines and principles except in so far as they are inconsistent with the Act.
Bardes
v.
Hawarden Bank,
In this situation, we think the court was as free to determine whether the relief afforded by Chapter XI was adequate as it would have been if respondent had filed its petition under Chapter X. What the court can decide under § 146 of Chapter X as to the adequacy of the relief afforded by Chapter XI, it can decide in the exercise of its equity powers under Chapter XI for the purpose of safeguarding the public and private interests involved and protecting its own jurisdiction from misuse. Here, we think it was plainly the duty of the district court in the exercise of a sound discretion to have dismissed the
If respondent had sought relief by way of an equity receivership such would have been the duty of the court.
Pennsylvania
v.
Williams, supra.
We think it is no less so here. Before the enactment of Chapters X and XI, the district court in a 77B proceeding was “not bound to clog its docket with visionary or impracticable schemes of resuscitation,” however honest the efforts of the debtor and however sincere its motives, and it was its duty to dismiss the proceeding whenever it appeared that a fair and equitable plan was not feasible, leaving the debtor to the alternative remedy of bankruptcy liquidation, see
Tennessee Publishing Co.
v.
American National Bank,
The Court of Appeals thought that the Commission had no such special interest as to entitle it to intervene as of right in the Chapter XI proceeding and concluded that the district court erred in permitting the intervention and that from this it followed that the Commission had no right to appeal. Its decision is in effect that a governmental agency not asserting the right to possession or control of specific property involved in a litigation may not be permitted to intervene without statutory authority. Neither Chapter X nor Chapter XI, in terms, gives a right of “intervention,” but the Commission is authorized, with the permission of the court, to appear in any Chapter X proceedings, § 208. Such right as the Commission may have to intervene in a Chapter XI proceeding is, therefore, governed by the Rules of Civil Procedure and the general principles governing intervention. We are not here concerned with the refinements of the distinction between intervention, as a matter of right, which the Court of Appeals thought was restricted to cases where the intervenor has a direct pecuniary interest in the litigation, and permissive intervention, a distinction which has been preserved by Rule 24 of the Rules of Civil Procedure. For here the question is not of the Commission’s intervention “as of right,” but whether the district court abused its discretion in permitting it to' intervene.
The Commission is, as we have seen, charged with the performance of important public duties in every case brought under Chapter X, which will be thwarted, to the
Rule 24 of the Rules of Civil Procedure, made applicable to bankruptcy proceedings by paragraph 37 of the General Orders in Bankruptcy, authorizes “permissive intervention.” It directs that “upon timely application anyone may be permitted to intervene in an action . . . (2) when an applicant’s claim or defense and the main action have a question of law or fact in common. In exercising its discretion, the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of. the original parties.” This provision plainly dispenses with any requirement that the intervenor shall have a direct personal or pecuniary interest in the subject of the litigation. Cf.
Pennsylvania
v.
Williams, supra.
If, as we have said, it was the duty of the court to dismiss the Chapter XI proceeding because its maintenance there would defeat the public interest in having any scheme of reorganization of re
This interest of the Commission does not differ from that of a liquidator under a state statutory proceeding who may, in a proper case, intervene in an equity receivership in a federal court to ask the court to relinquish its jurisdiction in favor of the state proceeding.
Pennsylvania
v.
Williams, supra.
Neither the liquidator nor the state has any personal, financial or pecuniary interest in the property in the custody of the federal court. Their only interest, like that of the Commission, is a public one, to maintain the state authority and to secure a liquidation in conformity to state policy. The “claim or defense” of the Commission founded upon this interest has a question of law in common with the main proceeding in the course of which any party or a creditor could challenge the propriety of the court’s proceeding under Chapter XI.
10
The claim or defense is thus within the requirement of Rule 24 and intervention was properly allowed. The Commission was, therefore, a party aggrieved by the court’s order refusing to dismiss and was entitled to appeal under § § 24 and 25 of the Bankruptcy Act. See
Interstate Commerce Comm’n
v.
Oregon-Washington R. Co., supra; Texas v. Anderson, Clayton & Co.,
Reversed.
The Chandler Act
1
revised the Bankruptcy Act of 1898, as amended, and, in chapters X, XI, XII, XIII, and XIV, provided for corporate reorganizations, arrangements, real property arrangements, wage earners’ plans, and Maritime Commission liens. These, with chapter VIII, authorizing agricultural compositions, chapter IX, dealing with indebtedness of local taxing agencies, chapter XV, added by Act of July 28, 1939, 53 Stat. 1134, and § 77, relating to reorganization of interstate railroads, in addition to the seven chapters of the original Act, constitute a comprehensive system for accommodating or liquidating indebtedness in the interest of both debtors and creditors. In chapters X to XIII, inclusive, added by the Chandler Act, the first section states: “The provisions of this chapter shall apply exclusively to proceedings under this chapter,” thus evidencing the purpose to
The proceeding instituted by the respondent, as is conceded, falls precisely within the terms of chapter XI, which deals with arrangements, and confers jurisdiction on the District Court to entertain the cause. But it is said that for the court to exercise that jurisdiction would be so contrary to the unexpressed purpose of Congress that the court should have refused to act. The decision assumes that if Congress had been interrogated as to its intent it would have expressed its will that an arrangement by one having such a financial structure as the respondent should not be permitted, and that, in order to prevent such a result, Congress, if it had been prescient, would have, so stated. This seems to me to go beyond the construction of the Act as it is written and to amount to an amendment of it. I think that this is not admissible on the ground advanced that to hold otherwise would be to nullify rather than to effectuate the intent of Congress which is thought to pervade the statutory scheme.
Where the words are as plain and unambiguous as they are in chapter XI, recourse cannot be had to legislative history or other extraneous aids to construe them in some other sense, to add to, or to subtract from, what is written. 2
But if resort to conventional aids to construction were admissible, they seem to me to confirm the statutory right of the respondent to proceed under chapter XI and to
Under § 12 of the Bankruptcy Act of 1898 a corporation could propose a composition, but, as recourse to bankruptcy, whether for the purpose of liquidation or of proposing a composition, was dependent upon insolvency as defined in the statute rather than mere inability to pay debts as they accrued, a company finding itself in the latter condition could not avail itself of the bankruptcy jurisdiction but had to resort to an equity receivership.
In 1932 the Solicitor General, in a report to the President on the Bankruptcy Act and its administration, 3 pointed out the difficulties of proposing a composition in bankruptcy and suggested relief of the sort which was ultimately accorded by the adoption of § 77B.
By an Act of March 3, 1933, 4 there was added to the Act a provision which permitted “any person excepting a corporation,” by petition, or by answer in an involuntary proceeding, to assert his insolvency or his inability to meet his debts as they accrued and his desire to effect a composition or an extension of time to pay his debts, and to adjust his indebtedness in that way. Thus an arrangement procedure was provided for individuals who were not insolvent in the bankruptcy sense. The same legislation also 5 provided for agricultural compositions and extensions and for reorganizations of interstate railroads, but Congress did not, at that time, afford any further relief to corporations generally.
By the Act of June 7/1934, 5 77B was added, permitting^ the reorganization of a corporation unable to meet its debts' as they mature.
The gravamen of petitioner’s argument is that Congress intended the more detailed and cumbersome procedure of chapter X to apply wherever securities of the corporation were held by the public whereas chapter XI was intended to apply only in the case of individuals or corporations not having such securities outstanding.
The Act will be searched in vain for any hint of such a distinction. Small corporations are permitted to avail
The argument of the Commission comes merely to this: That foresight and providence on the part of Congress would have dictated a different line of demarcation between the two chapters and' that what Congress should have said in chapter XI was that any debtor which did not have securities outstanding in the hands of the public might file a petition under chapter XI but that all others must file under chapter X.
The legislative history furnishes but the scantiest support for the argument. Indeed it bears quite as strongly against the Commission’s contention as in its favor. The only item to which counsel is able to point is a committee report to the House 7 wherein it is said:
“Section 12 has been recast; such features of section 74 are incorporated as are deemed of value, and the combined sections are made chapter XI of the act under the title ‘Arrangements’ . . . The inclusion of corporations will permit a large number of the smaller companies such as are now seeking relief under section 77B but do not require the complex machinery of that section, to resort to the simpler and less expensive, though fully adequate, relief afforded by section 12.”
It is' undoubtedly true that many more small corporations will find chapter XI available than large ones but this does not at all support the Commission’s claim that
On the other hand, testimony before the Congressional Committee was to the effect that large corporations would not come under chapter X if they were seeking merely to adjust their unsecured debts and should go, therefore, under chapter XI. 8
One of the draftsmen of the Chandler Act, in a public exposition, 9 has said:
“What is the line of demarcation between proceedings under Chapter X and Chapter XI? Without attempting to go into detail, Chapter XI proceedings are intended for the reorganization of corporations with simple debt structures — reorganizations under which the interests of stockholders and secured creditors are not to be modified or readjusted. If secured claims or stock interests are to be changed without the consent of all of the stockholders and secured creditors, proceedings must be instituted under Chapter X."
That chapters X and XI were not written in ignorance of the distinction between corporations having publicly owned securities and those which have not, is shown by the fact that a special committee’s report called attention to this difference and suggested that corporations not having such securities outstanding be permitted to go under the arrangements chapter whereas the first named should be required to file under what is now chapter X. 10 With this suggestion before it Congress adopted a different criterion.
When all is considered it is evident that little support for the Commission’s argument can be gained from the
Equally unavailing is the argument that the present case must belong under chapter X since secured creditors and stockholders must be brought into the reckoning and because one of the requirements of § 366 is that the court must find .the arrangement is “fair and equitable and feasible.” It is said that this phrase is a term of art, given meaning by our decision in
Northern Pacific R. Co.
v.
Boyd,
The short answer is that the phrase is used not only in chapter XI and chapter X but also in chapter XII respecting real property arrangements, and in chapter XIII respecting wage earners’ plans. 11 Obviously the phrase as used in the Chandler Act must be given the connotation appropriate to the section in which it is used.
Another argument put forward is that, as courts of bankruptcy are courts of equity, they may, as a chancellor might in the case of a bill for receivership, find that the balance of convenience requires a refusal to exercise a jurisdiction possessed. I think this is a complete misapplication of the principle that a court of bankruptcy is a court of equity. That has been many times stated but never in connection with the right of a debtor to' invoke the remedy provided by Congress in the bankruptcy laws.
No stockholder or creditor, secured or unsecured, has attempted to raise the question of the District Court’s jurisdiction under chapter XI. The Securities and Exchange Commission, although charged with no duty by the Act in connection with proceedings under chapter XI, has sought to intervene and to appeal from a decision by the District Court adverse to the Commission’s views. Although the Commission may be permitted to appear in chapter X proceedings, it is expressly provided that it may not appeal from any decision. 12 No' analogous provision is found in chapter XI although that chapter does, in certain instances, grant interested parties the right to be heard. 13
By general order the Rules of Civil Procedure are made applicable in bankruptcy so far as practicable. It is suggested that Rule 24 authorizes the Commission’s intervention but a mere reading of the rule shows that neither intervention of right, nor permissive intervention, is available to the Commission in this case. The Commis-son may not intervene as of right under the rule because no statute confers on it an unconditional right to intervene; the Commission has no interest which may be bound by a judgment in the action; and it cannot be
I am of the opinion that the judgment should be affirmed.
Notes
The alleged value of debtor’s assets is $7,076,515. Of this $5,200,000 is represented by the stock of the subsidiary and a first mortgage on a building owned by the subsidiary which is pledged to secure respondent’s $3,000,000 note. Current assets are less than $400,000. The balance of the assets consists chiefly of mortgages, loans and other securities in the amount of $555,655, an investment of $477,300 in securities of an independent company, unimproved real estate valued at $290,000, and a note receivable from a subsidiary of $137,500. As against the total nominal value of these assets of $7,076,515, the debtor’s total liabilities, including its liability on the matured debenture certificates, are $9,261,916.
The record shows that counsel for one of the committees of bondholders interposed objections to the Chapter XI proceedings and proposed to file an involuntary petition under Chapter X. The district judge expressed the opinion that a Chapter X proceeding was preferable, but when the debtor agreed to make an immediate interest
By § 126 a corporation or three or more creditors may file a petition under Chapter X.
By § 130 every petition shall state:
“(1) that the corporation is insolvent or unable to pay its debts as they mature;
“(2) the applicable jurisdictional facts requisite under this chapter;
'(7) the specific facts showing the need for relief under this chapter and why adequate relief cannot be obtained under chapter XI of this Act; . . .”
§ 311 confers on the court in which the petition is filed exclusive jurisdiction of the debtor and his property, where not inconsistent with the provisions of the chapter.
See S. Doc. No. 65, 72d Cong., 1st Sess., p. 90; H. Rept. No. 1049, 75th Cong., 1st Sess., p. 2.
The basic assumption of Chapter X and other acts administered by the Commission is that the investing public dissociated from control or active participation in the management, needs impartial and expert administrative assistance in the ascertainment of facts, in the
The revision of 77B resulted from the investigation of a Special Senate Committee to Investigate Receivership and Bankruptcy Proceedings, S. Doc. No. 268, 74th Cong., 2d Sess.; and from a study by the Securities and Exchange Commission of the degree of protection afforded to the investing public in reorganizations. Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective and Reorganization Committees (1936-1939). See Hearings before the Committee on the Judiciary on H. R. 8046, 75th Cong., 1st Sess.; Hearings before a Subcommittee of the Senate Committee on the Judiciary on H. R. 8046, 75th Cong., 2d Sess.; H. Rept. No. 1409, 75th Cong., 1st Sess.; S. Rept. No. 1916, 75th Cong., 3d Sess. See Dodd, The Securities and Exchange Commission’s Reform Program for Bankruptcy Reorganizations, 38 Col. L. Rev. 223; Swaine, “Democratization” of Corporate Reorganizations, 38 Col. L. Rev. 256; Heuston, Corporate Reorganizations under the Chandler Act, 38 Col. L. Rev. 1199; Teton, Reorganization Revised, 48 Yale L. J. 573; Gerdes, Corporate Reorganizations — Changes Effected by Chapter X of the Bankruptcy Act, 52 Harv. L. Rev. 1; Rostow and Cutler, Competing Systems of Reorganization, Chapters X and XI of the Bankruptcy Act, 48 Yale L. J. 1334,
Chapter XI was sponsored by the National Association of Credit Men and other groups of creditors’ representatives expert in bankruptcy. Hearings before the House Committee on the Judiciary, on H. R. 6439 (reintroduced and passed'in 1938 as H. R. 8046), 75th Cong., 1st Sess., pp. 31, 35.' • Their business of representing trade creditors in small and middle-sized commercial failures is an important factor in the background of the chapter. See, Montgomery, Counsel for the Association of Credit Men, on Arrangements, 13 J. N. A. Ref. Bankruptcy, 17,
Royal Indemnity Co.
v.
American Bond & Mortgage Co.,
See Note 8 supra.
Act of June 22, 1938, 52 Stat. 840.
Thompson
v.
United States,
Sen. Doc. 65, 72d Cong., 1st Sess.
47 Stat. 1467, § 74.
48 Stat. 911.
11 U. S. C. §§ 706, 707.
H. Rep. 1409, 75th Cong., 1st Sess., pp. 50-51.
Hearings, Subcommittee Senate Judiciary Committee on H. R. 8046, 75th Cong., 2d Sess., p. 75.
Journal of the National Association of Referees in Bankruptcy (Jan. 1939), p. 72.
Sen. Doc. 268, 74th Cong., 2d Sess., pp. 9-15.
See §§ 472 and 656, 11 U. S. C. §§ 872, 1056.
§ 208, 11 U. S. C. § 608.
§§ 334 and 365, 11 U. S. C. §§ 734 and 765.