Document: 379 U.S. 594 85 S.Ct. 513 13 L.Ed.2d 510 SECURITIES AND EXCHANGE COMMISSION, Petitioner,v.AMERICAN TRAILER RENTALS CO. No. 35. Argued Nov. 10, 1964. Decided Jan. 18, 1965. [Syllabus from pages 594-596 intentionally omitted] Daniel M. Friedman, Washington, D.C., for petitioner. Arthur W. Burke, Jr., Denver, Colo., respondent. Mr. Marcien Jenckes, Boston, Mass., State Mutual Life Assurance Co. of America and others. Justice GOLDBERG delivered the opinion Court. 1 The issue in this case is whether respondent's attempted corporate rehabilitation under Bankruptcy Act, materially affecting rights widespread public investor creditors, may be conducted Chapter XI 52 Stat. 905, as amended, 11 U.S.C. § 701 et seq. (1958 ed.), or dismissal or, effect, transfer to proceedings X that 883, 501 required upon motion by Securities Exchange Commission any other party interest, pursuant 328 66 432, 728 ed.).1 I. 2 Respondent, American Trailer Rentals Company, was organized 1958 engage automobile-trailer rental business.2 business financed largely through sale trailers investors their simultaneous lease-back. From 1959 1961 hundreds small investors, scattered throughout entire western part United States, purchased leased back a total 5,866 trailers, paying an aggregate price $3,587,439 (approximately $600 per trailer). Under usual form lease-back agreement, trailer owners were receive set 2% investment month 10 years.3 3 sold then are general utility type attached rear bumper automobiles. They placed respondent at gasoline stations, operators which acted agents, without ever having seen them. Respondent had about 700 such service station December 1961, although number declined 500 time petition arrangement filed year later. 4 Respondent's further offering these arrangements halted when SEC advised contracts therefore securities, could not unless until registration statement became effective Act 1933, 48 74, 15 77a ed.). with pertaining arrangements. This statement, however, never effective, instituted stop distribution proposed prospectus on grounds it contained false misleading statements. See 8(d), 79, 77h(d) In June 1963, consented entry order stopping prospectus. SEC, Release 4615 (1963). 5 After attempt register agreements failed, executive vice president persons corporation named Capitol Leasing Corporation, offered creditors exchange its stock basis one share each $2 paid trailers. acquired approximately 300 outstanding stock, suspended exemption offerings, relied making offer,4 there reasonable cause believe material used offer again 6 Following event, plan Act. petition, annexed schedules, documents show operated profit. For three years ended September 30, income 'gross rentals' $395,610. same period, made payments investor-trailer $613.021; $118,400; incurred additional 'operating expenses' $668,698. 7 $613,021 included whose yet been obtained put into system. make necessary operators, only borrowed money officers, directors, stockholders but also funds purchase new Virtually all affiliate officers directors interests. Many proved defective design otherwise unsuitable rental. About prior filing proceeding, manufacturing bankrupt, owing $200,000 manufactured amount $150,000 delivered. These latter mortgaged third who took possession affiliate's bankruptcy. addition, some 100 respondent, obligated do so, did have insurance coverage, unlocatable considered lost. Finally, certain received been, earlier misappropriated member members management. president, estimated misappropriation loss least $141,000, attributed 'almost completely' deceased original management group, feel 'qualified (the) judgment' two remaining including owned over 15% common held liable. 8 At stated assets $685,608, $500,000 represented 'value' trailer-rental system, intangible asset. It system (which consisted operator agents) 'was built (respondent) cost $500,000,' despite fact balance sheet showed establishing stations $33,750, 800 would $56,000. liabilities $1,367,890, $710,597 owed leasing agreements; $200,677 manufactured;.$71,805 trade creditors; $285,277 directors. 9 submitted interests (their well amounts them agreements) 'remaining capital trailers,' sum determined deducting amount, if any, payments.5 $3.50 claims. itself, transferring 107,000 shares distribute stockholders. obligations banks, totaling $55,558, clearly unsecured, full, presumably because liable guarantors obligations. If approved participated, 866,000 Capitol's issued them, 81,500 directly 22,400 itself distributed More than 60% eight men, seven whom eighth promoters venture. motion, dismiss proceeding ground should brought thus available. A referee bankruptcy whom, special master, referred, recommended denied 'a sufficient showing warrant granting Section motion.' his hearing matter, District Judge recognized that, light widely nature individual holdings small, plan's issuance mean they, rather owners, control Capitol, expressed 'disapproval' result. He disapproval preferential treatment banks avoid officer director guarantors.6 Court, 'accepted adopted' referee's findings written opinion. Court Appeals affirmed, holding 'since rests discretion (district) court, while we think border-line case, does appear S.E.C. has shown adequate relief obtainable abuse warranting reversal.' 325 F.2d 47, 52. We granted certiorari, 376 948, 84 971, 969. II. 12 background operative procedures each, interrelationship between reviewed v. States Realty & Improvement Co., 310 434, 60 1044, L.Ed. 1293 General Stores Corp. Shlensky, 350 462, 76 516, 550. detailed Realty, supra, follows: Before passage, 1934, 77B 912, no facilities rehabilitation, which, therefore, left equity receiverships, attendant paraphernalia creditors' security holders' committees, rival plans reorganization. Lack judicial conditions attending formulation plans, inadequate protection holders, frequent adoption favored expense afforded temporary respite financial collapse, so often characteristic receivership reorganizations, led enactment 77B. S.Doc.No. 65, 72d Cong., 1st Sess., 90; H.R.Rep.No.1409, 75th 2. As present X, permitted adjustment debtor, secured unsecured 14 day preceding 77B, Congress created agency charged function protecting investing public, 885, 78d urging of, based extensive studies was, 1938, revised enacted changed X. 883 905. aims afford greater providing impartial expert administrative assistance reorganizations appointment disinterested trustee active participation SEC. proceeding7 thorough examination study debtor's problems management, §§ 167(3), (5), transmit independent report stockholders, this, gives notice submit him proposals 167(5), (6). formulates reorganization he presents court. court finds worthy consideration, refer must where exceed $3,000,000. 172. When plan, after approval finally accompanied advisory judge plan. 175. class affected holders two-thirds claims and, debtor found insolvent, majority stock. 179. becomes final confirmation finding, inter alia, 'the fair equitable.' 221. 16 also, XI. 905—916. statutory variation common-law composition unlike broader scope limited debts. sponsored National Association Credit Men groups representatives experience representing middle-sized commercial failures. Hearings before House Committee Judiciary H.R. 6439 (reintroduced 8046 1938), 31, 35; J.N.A.Ref.Bankr. (1938). contrast provisions carefully designed protect creditor stockholder involved, summary quite marked. arrangement, indeed practical purposes hands subject requisite consent 362, ultimate finding is, 'for best creditors,' 366.8 'The process formulating solicitation sacrifices speed economy every safeguard, interest thoroughness disinterestedness, provided X.' 450—451, 1051. generally remains operates supervision, 342. very situation previously appointed,9 332. There requirement receiver, 'may' appoint 'necessary,' by, 306(1), 323, 357, choice accepting rejecting it. Acceptances solicited even fact, review 336(4). trustee, advice being given advance acceptance arrangement. short, provides procedure whereby formulated accepted bare minimum supervision. This, course, consistent basic purpose XI: provide quick economical means facilitating simple compositions among deemed need minimal Chapter. 17 enacting distinct methods rehabilitations, clear Chapters alternate routes, debtor. Rather, they legally, mutually exclusive paths rehabilitation. 'adequate relief' XI, 146(2). Likewise, dismissed, effect transferred, 'should brought' 328. III. 18 here contends absolute rule, alter hand, rule determination proceedings, facts particular reversed abused. Both parties rely Corp., respective contentions. 19 involved publicly debentures, mortgage certificates, debentures unaffected both extended payment certificates reduced rate. argued avenue large corporations many While argument 'in * chapters specifically devised different procedures, (Chapter X) adapted complicated debt structures XI) debts businesses few *.' U.S., 447, 1049. adversely many, wit, control, participation, employment trustees, assured better serve private concerned those debtor,' id., 455, 1053, almost complete reaching result, explored great length safeguards investors: 20 assumption acts administered dissociated needs ascertainment facts, detection fraud, understanding complex problems.' Id., 448—449, n. 6, 1050. 21 Applying principles, Appeals' affirmance Court's refusal challenged 22 noted bill introduced draw numerical line close securities more Hearing Special Subcommittee Reorganization 9864, 76th 3d Sess. reporting out bill, stated: 23 'Sections 4, 5, eliminated last your committee's amendments, amendments chapter prevent indebted specially corporations, establish test 'public' indebtedness ownership. 24 'Your committee believes sections desirable, element emergency requiring immediate passage decision Supreme Company. That rendered May 27, 1940, introduction bill. Since action necessary, striking 7. conclusion supported witnesses testified hearings bill.' H.R.Rep.No. 2372, 25 2,000,000 7,000 shareholders, kind, petitioned debt, consisting investor. held, affirming unavailable needed merely creditors. affirmed. doing, rejected SEC's available owned. 26 'It most cases c. will appropriate remedy. But necessarily so. company much smaller company. And reason can see why end. essential difference served.' 466, 519. 27 pointed 'needs served' factors requirements fairness trustee's evaluation accounting readjust structure debt. 466—467, IV. 28 agree principles apply govern result case. reaffirm utilized recognized, drawn hard-and-fast Chapters. purporting bow holdings, urges absolute-rule owned, require use 100% involving 29 argues, support hold deprive X's 'fair equitable' above, whereas contains proviso requires creditors.' words 'words art' senior entitled full priority junior ones particular, 'that extent scaling down compensating advantage inadmissible.' 452, 1052. argument, premised assertion, find either language legislative history doctrine. 1952, deleted replaced properly philosophy expedite 'simple' compositions. S.Rep.No. 1395, 82d 2d 11—12; 2320, 19, 20—21; U.S.Code Congressional Administrative News, p. 1960. indication intended way change law just opposite.10 expressly codified, 328, dismissal, transfer, Nothing suggests give intended, stated. Moreover, pp. 608-609, subcommittee general, absolute, reported line.11 30 argues right intervene solely moving reject argument. scheme, express responsibilities heard proceeding. advanced involved. short answer ofdemarcation 31 mean, disagree adjusted, Canandaigua Enterprises 339 (C.A.2d Cir.). Not holding, it.12 Public are, here, far less likely aware condition collapse commonly committees capable continuing relations Where likely, become familiar finances, indicating desirability performing functions. seems primarily mind. Acts responsibility investors.13 thinking doctrine unnecessary XI.14 32 indicates narrow limits within exceptions adjusted 'Simple' still effected Such situation, exist, example, operations where, number, relatively minor, consisting, extension payment. 33 On makes though affected, protections because, evidence misdeeds might made, 34 above obvious Here adjusted. widespread, intimately connected major certainly minor. alone above-stated principles. addition out, substantial assets, reorganization, that. exchanging interests, corporation, Indeed, except offered, note stopped information. F.2d, 53, disclosures regard (in soliciting owners' consents plan) inadequate. No authority indicate recipients connection information acquiring ordinary conditions.' agree. 35 aptly demonstrate public-investor profitably, always precarious condition, apparently hopelessly sense, proposed. period funds. Most affiliated company; for, manufactured, bankrupt. Only contributed purpose; drained off high commissions taken public. Portions sales were, turn, pay purchasers rentals promised. $1,367,890 double $685,608; ($500,000) alleged 'estimated' value i.e., operators. 'there question presently operating it, continue investors.' I find, since 'not established yet.' One opportunity conduct searching inquiry 'clearly establish' belief. Stores, investigation possible causes against past true now enacted, cannot expected investigate itself.' 6439, 176 (my Brother DOUGLAS testifying Chairman SEC). 36 too great. another stating natural preference 'speed economy' 'thoroughness disinterestedness' area, statutes public,15 outweighs self-interest 'needs' so-called economy.' area confirmed view disinterestedness savings private, Twenty-Eighth Annual Report 98 (1963); Twenty-Ninth 90—91 (1964); Note, 69 Harv.L.Rev. 352, 357—360 (1955). themselves sufficiently flexible act keep expenses proper bounds insure expedition proceedings.16 straight liquidation, contends, 'would probable owners.' answers general-time-and-expense compelled point outcome prolong—without good public—the life suffering terminal ills. Fidelity Assn. Sims, 318 608, 63 807, 87 1032.17 37 affirmed discretion. relies contention. However, contention misreads misconceives import. supports permits open-ended district decide case-by-case basis, reliance reaffirmed, XI.18 Second Circuit recent bound decisions reflecting 'particular predilections' Canadaigua 19. consequence, particularly multijudge district, depend accident calendar—in defiance memorable admonition, litigants opposite another,' Cardozo, Nature Judicial Process (1921).' Ibid. respondent.19 38 dismiss, granted.20 Therefore, judgment remanded 39 Reversed remanded. may, application Commission, direct, title, enter dismissing chapter, unless, shall fix, amended comply title filed. Upon fees section 532 thereafter, originally chapter.' group interrelated companies later merged it; simplicity history. Although overwhelming type, vary 3% years. flat 35% derived Regulation (17 CFR 230.251 seq.), promulgated 3(a), 75, 77c(a) months suspended, deductions 'return capital.' 599. hearing, modified $5.50, instead $3.50, claims, voting, dividend liquidation five years, treated manner $250,000, permits, require, trustee. Originally text 1952. infra, 611. occur already proceedings. 321; Collier, Bankruptcy, 587—588 (1964 Congress, deleting somehow overturned Realty. 614. regard, irrelevant determining whether, 'public involved,' cf. S.Ct., sometimes expressing rationales conclusions courts appeals above. supra; Crumpton Builders, Inc., 337 907 (C.A.5th Cir.); Liberty Baking 240 511 Mecca Temple Ancient Arabic Order Nobles Mystic Shrine Darrock, 142 869 Grayson-Robinson Inc. 320 940 Wilcox-Gay 231 859 (C.A.6th re Transvision, 217 243 Barchris Construction 223 F.Supp. 229 (D.C.S.D.N.Y.); Herold Radio Electronics 191 780 (D.C.S.D.N.Y.). E.g., ed.); 881, 78a 21; 11—12. Cf. 454, 13, supra. has, measure work performed 167, approve participants 241—250. vehicles explicitly dismissed 'good faith.' 141. 'Good faith' defined exclude cases, 'it unreasonable expect effected.' 146(3). exist insolvent expedient. Goodman Michael, 280 106, 108 (C.A.1st 6.09 (1964). provision feasible.' 366(2). construed preclude substantially reasonably realize liquidation. Bruce Hunt 163 939 (D.C.N.D.N.Y.); 9.17 wherein, pointing lower courts' 'may going readjustment XI,' 468, 520, MR. JUSTICE stated, Court: 'We reverse exercise transcended allowable bounds. say does. Rather reading functions serves concluded pervasive XI.' context discretionary referred determine rules governing appropriate, applied factual terms, affect remove merit. First, investor-creditors. Second, voluntary ignores purchasing corporation. missing, remainder States. seriously contended completely one. 17, issues relevant confines 453, 1052; 9.17.

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