Source: https://supreme.justia.com/cases/federal/us/323/624/
Timestamp: 2019-04-26 02:18:01+00:00

Document:
1. Whether a provision of a corporate charter granting the preferred stock a specified preference upon liquidation applies to a liquidation in a simplification pursuant to § 11(b)(2) and (e) of the Public Utility Holding Company Act of 1935 is a question of federal law. P. 323 U. S. 636.
2. A provision of a corporate charter granting the preferred stock a specified preference upon liquidation, adopted six years prior to the enactment of the Public Utility Holding Company Act of 1935, held inoperative in a simplification by liquidation under § 11(b)(2) of that Act. P. 323 U. S. 637.
Congress did not intend that its exercise of power to simplify holding company systems should mature rights which were created without regard to the possibility of such exercise of power and which otherwise would mature only by voluntary action of stockholders or involuntarily through action of creditors.
3. Continental Insurance Co. v. United States, 259 U. S. 156, distinguished. P. 323 U. S. 638.
4. In a liquidation pursuant to § 11(b)(2) of the Public Utility Holding Company Act of 1935, allocation of the assets a between different classes of securities may be made without dollar valuation so long as each security holder in the order of his priority receives the equitable equivalent of rights surrendered. P. 323 U. S. 639.
Certiorari, 322 U.S. 724, to review the affirmance of a judgment approving a plan for the liquidation and dissolution of a holding company pursuant to an order of the Securities & Exchange Commission under the Public Utility Holding Company Act of 1935.
An important although narrow legal point in the interpretation of the Public Utility Holding Company Act of 1935 [Footnote 1] is involved in this case. This is whether a plan under section 11(e) of that act may be "fair and equitable" to preferred stockholders within the meaning of those words as used in that section, which allows a participation by junior common stockholders in the distribution of the assets of a registered holding company, which is liquidated in compliance with section 11(b)(2), before the senior preferred stockholders receive securities whose present value equals the preferred's full liquidation preferences.
The Securities and Exchange Commission approved the Plan, Holding Company Act Release No. 4215, April 5, 1943. The United States District Court of Delaware approved the Plan, 51 F.Supp. 217, and the Circuit Court of Appeals affirmed this action. This Court has jurisdiction under Judicial Code, Section 240, and Section 25 of the Holding Company Act. Certiorari was granted because of the importance of the question raised in administration of the act. 322 U.S. 724.
The United Light and Power Company, a Maryland corporation, is a registered holding company under the Act. Section 5. It is the top holding company of a large system with twenty-four other corporate associates. Section 2(a)(10). Its place in the system violates the prohibition of the Act against a registered holding company's being a "holding company with respect to [any] of its subsidiary companies (Sec. 2(a)(8)) which itself has a subsidiary company which is a holding company." Section 11(b)(2). This prohibition is known as the "great-grandfather clause."
in the Plan was accepted. Holding Company Act Release No. 4215. This is the order which is before us.
and the one here in issue was Power's proposed distribution of its assets to its preferred and common stockholders. Power's chief asset was its holdings of common stock in its subsidiary, Railways. It represented over $72,000,000 of its total gross assets of a little more than $81,000,000. All other property of Power which remained after the satisfaction of its obligations was to be distributed by Power to Railways. Thus, this residual property of Power would inure to the benefit of Railways' new common stockholders, the former stockholders of Power.
company system that Power had. The rights and preferences of Power's stockholders would, of course, disappear with the distribution of Railways' common and the dissolution of Power. As holders of Railways' single class of common, a new relationship of equality would arise between Power's preferred and common stockholders.
This order was preceded by an examination by the Commission into the situation of this holding company system. [Footnote 5] For a clear understanding of the single issue as to whether, in the liquidation of a holding company by order of the Commission under section 11(e), a participation by junior security holders in the assets is permissible before preferred security holders have received the entire liquidating preference secured to them by the company's charter, it is sufficient to state only the following facts, about which there is no controversy between the litigants. Power is a solvent company. As of April 30, 1942, and there is no intimation that its condition has worsened, its balance sheet showed assets of $81,159,075 and liabilities of only $6,132,976, without consideration of its capital stock structure. Its principal asset, the Railways common stock heretofore referred to, has a book value in excess of the $72,000,000 plus, at which it is carried on Power's balance sheet, and an actual value which makes Power unquestionably solvent with large equity values in its stock.
If the liquidation preference of Power's preferred stock is applicable, under the Commission's conclusions on present valuations, all of the Railways' common would go on distribution to Power's preferred. The Commission determined that the liquidation preference was not applicable and for these reasons.
of amounts payable in a traditional dissolution. Upon analysis of the Holding Company System's experience and upon an estimate of future earnings, the Commission assumed earnings of $6,185,000 annually which would be applicable to Railways' common and, as a consequence of the distribution, to Power's preferred and common stockholders. Since the annual preferred dividend requirements were $3,600,000, there appeared a balance of $2,585,000 available for the reduction of preferred stock arrearages of $38,700,000 as of December 31, 1942. The Commission noted that, if all the assumed earnings materialized and were applied to liquidating the preferred current and deferred dividends, in approximately fifteen years, the arrearages would be paid and the common would be in a position to receive dividends. [Footnote 11] Furthermore, only by forced liquidation could the common stock be deprived of its possibility for future earnings. Only by means of forced liquidation and the receipt of all Railways' common could Power's preferred gain a right to prospective earnings above its guaranteed dividends. The deferred dividends do not bear interest. While recognizing that the common stock participation was remote, the Commission determined that, in its "overall judgment," Power's common had a legitimate investment value of a proportion of 5.48 percent of Power's assets to the preferred's value of 94.52 percent. Such a conclusion is not "susceptible of mathematical demonstration," [Footnote 12] any more than any other valuation of a utility's worth. The Commission determined this allocation was fair and equitable within section 11(e).
"When the Plan, whatever the device used, contemplates the surrender of outstanding securities for new securities, either in the same or a different company, it is not 'fair and equitable' to force senior security holders to accept less than that which they are contractually entitled to receive."
To petitioner, no distinction is to be drawn between liquidation under bankruptcy or reorganization and liquidation under the Public Utility Holding Company Act by virtue of sections 11(b)(2) and 11(e).
We reach the conclusion that the Securities and Exchange Commission applied the correct rule of law as to the rights of the stockholders inter sese. That is to say, when the Commission proceeds in the simplification of a holding company system, the rights of stockholders of a solvent company which is ordered by the Commission to distribute its assets among its stockholders may be evaluated on the basis of a going business, and not as though a liquidation were taking place.
The manifest solvency of Power simplifies the problem of stockholders' rights with which we are here concerned.
of assets only to the preferred. We do not reach that question. The point at issue is whether this charter provision applies.
"Such a measure will not destroy legitimate business or wholesome and productive investment. It will not destroy a penny of actual value of those operating properties which holding companies now control and which holding companies securities represent insofar as they have any value. On the contrary, it will surround the necessary reorganization of the holding company with safeguards which will in fact protect the investor."
S.Rep. No. 621, 74th Cong., 1st sess., p. 2.
"Simplification and reorganization of holding company structures, making possible within a reasonable period the practical elimination of the holding company, should be conducted under the Commission's supervision over a period of time to prevent undue losses to security holders from investment dislocations."
or consolidation, which would not run afoul of a charter provision formulated years before adoption of the Act in question. The Commission, in its enforcement of the policies of the Act, should not be hampered in its determination of the proper type of holding company structure by considerations of avoidance of harsh effects on various stock interests which might result from enforcement of charter provisions of doubtful applicability to the procedures undertaken. Where preexisting contract provisions exist which produce results at variance with a legislative policy which was not foreseeable at the time the contract was made, they cannot be permitted to operate. Compare New York Trust Co. v. Securities and Exchange Commission, 131 F.2d 274; In re Laclede Gas Light Company, 57 F.Supp. 997. The reason does not lie in the fact that the business of Power continues in another form. That is true of bankruptcy and equity reorganization. It lies in the fact that Congress did not intend that its exercise of power to simplify should mature rights, created without regard to the possibility of simplification of system structure, which otherwise would only arise by voluntary action of stockholders or, involuntarily, through action of creditors. We must assume that Congress intended to exercise its power with the least possible harm to citizens.
coal company, the value of whose stock, by negotiable certificates of interest, came into possession of Reading's old stockholders individually. The distribution gave equal participation in the coal properties to the common and preferred stock in accordance with the charter agreement as to assets on liquidation, pages 259 U. S. 177-181. The common stock contended that as the value of the coal properties was surplus, all of the coal certificates should go to the common stockholders as in a continuing business. Thus, by its approval of the distribution, this Courts handled the liquidation, which was forced by law, says petitioner, in accordance with the charter provisions and not as though it were a continuing business.
The Continental or Reading case turned, however, on the charter rights of the preferred to share equally with the common in earnings which had become assets, pages 259 U. S. 179-180, not on whether a right to share was matured or varied by governmental action. Contrary to the situation in this present case, the charter provisions of the Reading Company were adopted with knowledge of the sanctions of the Sherman Act against monopoly. 259 U.S. at 259 U. S. 177 and 259 U. S. 171. We do not feel constrained by its dealing with charter rights as in a normal liquidation to hold that, where liquidation is adopted as a matter of administrative routine, the preferences are thereby matured.
from that which is available for the satisfaction of his claim the equitable equivalent of the rights surrendered."
Group of Investors v. Chicago, M., St. P. & P. R. Co., 318 U. S. 523, 318 U. S. 565, supra; Consolidated Rock Products Co. v. Du Bois, 312 U. S. 510, 312 U. S. 529; Ecker v. Western Pacific R. Corp., 318 U. S. 448, 318 U. S. 482; Kansas City R. v. Cent. Union Tr. Co., 271 U. S. 445, 271 U. S. 455, supra.
As the parties have not challenged them, we have not considered in any way the constitutionality of the sections of the Holding Company Act involved.
The findings and opinion which led to this order are found in In the Matter of The United Light and Power Company, 8 S.E.C. 837.
"It shall be the duty of the Commission, as soon as practicable after January 1, 1938:"
"(2) To require by order, after notice and opportunity for hearing, that each registered holding company, and each subsidiary company thereof, shall take such steps as the Commission shall find necessary to ensure that the corporate structure or continued existence of any company in the holding company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding company system. In carrying out the provisions of this paragraph, the Commission shall require each registered holding company (and any company in the same holding company system with such holding company) to take such action as the Commission shall find necessary in order that such holding company shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company. . . ."
49 Stat. 820-821, sec. 11(b)(2).
"(e) In accordance with such rules and regulations or order as the Commission may deem necessary or appropriate in the public interest or for the protection of investors or consumers, any registered holding company or any subsidiary company of a registered holding company may, at any time after January 1, 1936, submit a plan to the Commission for the divestment of control, securities, or other assets, or for other action by such company or any subsidiary company thereof for the purpose of enabling such company or any subsidiary company thereof to comply with the provisions of subsection (b). If, after notice and opportunity for hearing, the Commission shall find such plan, as submitted or as modified, necessary to effectuate the provisions of subsection (b) and fair and equitable to the persons affected by such plan, the Commission shall make an order approving such plan, and the Commission at the request of the company, may apply to a court, in accordance with the provisions of subsection (f) of section 18, to enforce and carry out the terms and provisions of such plan. If, upon any such application, the court, after notice and opportunity for hearing, shall approve such plan as fair and equitable and as appropriate to effectuate the provisions of section 11, the court as a court of equity may, to such extent as it deems necessary for the purpose of carrying out the terms and provisions of such plan, take exclusive jurisdiction and possession of the company or companies and the assets thereof, wherever located, and the court shall have jurisdiction to appoint a trustee, and the court may constitute and appoint the Commission as sole trustee, to hold or administer, under the direction of the court and in accordance with the plan theretofore approved by the court and the Commission, the assets so possessed."
49 Stat. 822, sec. 11(e).
The details are fully covered in 8 S.E.C. 837 and Application 14, Release No. 4215.
"Upon the dissolution or liquidation of the corporation, whether voluntary or involuntary, the holders of the Class A Preferred stock shall be entitled to receive out of the net assets of the corporation, whether capital or surplus, for each share of such stock, one hundred dollars and a sum of money equivalent to all cumulative dividends on such share, both accrued and in arrears (whether or not the same shall have been declared or earned), including the full dividend for the then current quarterly period, before any payment is made to the holders of any stock other than the Class A Preferred stock. Any assets thereafter remaining shall be distributable among holders of stock other than the Class A Preferred stock in accordance with their rights at the time of the distribution."
"The Common Stock of the Company shall be subject to the rights of the holders of the Class A Preferred stock."
The two classes are entitled to the same rights, except the B has votes. As there is no dispute before us as to the relative rights or priorities of the common, the two classes will be treated in this opinion as a single class of common.
"In order to show a value of as much as $98,700,000, it would be necessary to capitalize 1942 consolidated net earnings applicable to the common stock of Railways (the highest earnings since 1931) at a rate of 6.9%, a times-earnings ratio of 14.5. Even if the most liberal estimate of earnings made by the management, in the amount of $7,000,000, be taken as the measure of prospective earning power, capitalization of such earnings at a rate producing a times-earnings ratio of 14.1 is necessary to reach an over-all value of $98,700,000."
Release No. 4215, pp. 7-8.
The Commission illustrated the market valuation by times-earnings ratio by pointing out that for nine representative public utility holding companies it had averaged from a high of 12.5 in 1937 to a low of 5.1 in 1942 with 1943 at 7.1. Id.
Release No. 4215, pp. 9-12.
Release No. 4215, p. 18.
Northern Pacific Railway Co. v. Boyd, 228 U. S. 482; Case v. Los Angeles Lumber Products Co., 308 U. S. 106; Consolidated Rock Products Co. v. Du Bois, 312 U. S. 510; Marine Harbor Properties v. Manufacturers' Trust Co., 317 U. S. 78; Ecker v. Western Pacific R. Corp., 318 U. S. 448; Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 318 U. S. 523.
Creditors' contracts also have been declared subject to equitable adjustment in corporate reorganizations so long as they receive "full compensatory treatment," whether the reorganization is in bankruptcy (Kansas City Terminal R. v. Central Union Trust Co., 271 U. S. 445, 271 U. S. 455; Consolidated Rock Products Co. v. Du Bois, 312 U. S. 510, 312 U. S. 528; Group of Investors v. Chicago, M., St. P. & P. R. Co., 318 U. S. 523, 318 U. S. 565, 566, supra) or in compliance with regulatory statutes. Continental Ins. Co. v. United States, 259 U. S. 156, 259 U. S. 170, 259 U. S. 176. The full priority rule applies to reorganizations of solvent companies. Consolidated Rock Products Co. v. Du Bois, 312 U. S. 510, 312 U. S. 527.
See In the Matter of Jacksonville Gas Company, Holding Company Act Release No. 3570, In re Jacksonville Gas Co., 46 F.Supp. 852, 856.
In re New York Railways Corp., 82 F.2d 739, 743, 744; In re National Food Products Corp., 23 F.Supp. 979, 985; In re Utilities Power & Light Corp., 29 F.Supp. 763, 769.
"It is pointed out in Commissioner Healy's separate opinion that the words 'fair and equitable' embodied in Section 11 have a settled meaning, as determined by the courts, and that an application of the 'absolute priorities' doctrine must result in no distribution to Power's common stock in this case. But that is because he measures the rights of the preferred stock as they would be measured in bankruptcy cases, and not merely because he follows the 'absolute priorities' doctrine in determining the consequences of the measurement. In other words, we can agree with him when he says that absolute priorities must be respected, because we think that doctrine simply means that the common stock must not be accorded any participation unless the preferred stock has been fully compensated for its rights and priorities. But there the area of agreement stops, because he says further that the rights and priorities of the preferred stockholders are the same here as in bankruptcy cases, where their claims to liquidation preferences (including dividend arrearages) are treated as matured. In our view, it would be unconscionable and contrary to the plain intention of Congress to so hold."
Holding Company Act Release No. 4215, p. 12.
"Under the circumstances, fair and equitable compensation will be given to all of the claimants if their rights are measured not in terms of the situation created by the statute, but rather in terms of the situation terminated by it -- i.e., as though no liquidation were to take place. In this way, each class of stock will be accorded its proportionate share of the benefits to be gained from the elimination of a useless and expensive corporate entity and from the receipt of a security representing a more direct investment in the underlying assets and earnings of the system."
Jerome v. United States, 318 U. S. 101, 318 U. S. 104; Wragg v. Federal Land Bank, 317 U. S. 325, 317 U. S. 328; Chicago Board of Trade v. Johnson, 264 U. S. 1, 264 U. S. 10; Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173, 317 U. S. 176; Labor Board v. Hearst Publications, 322 U. S. 111, 322 U. S. 120, 322 U. S. 129; Clearfield Trust Co. v. United States, 318 U. S. 363, 318 U. S. 366; O'Brien v. Western Union Telegraph Co., 113 F.2d 539, 541.
"Such disposition as may be necessary can be accomplished by reorganization which will equitably redistribute securities among existing security holders." S.Rep. No. 621, 74th Cong., 1st Sess., p. 16; H.Rep. No. 1318, 74th Cong., 1st Sess. pp. 49, 50.
259 U. S. 259 U.S. 156 at 259 U. S. 177; United States v. Reading Co., 253 U. S. 26; 26 Stat. 209; 34 Stat. 584.
MR. JUSTICE ROBERTS, MR. JUSTICE FRANKFURTER, and I think the judgment below should be reversed.
"Upon the dissolution or liquidation of the corporation, whether voluntary or involuntary, the holders of the Class A Preferred Stock shall be entitled to receive out of the net assets of the corporation, whether capital or surplus, for each share of such stock, one hundred dollars and a sum of money equivalent to all cumulative dividends on such share, both accrued and in arrears (whether or not the same shall have been declared or earned), including the full dividend for the then current quarterly period, before any payment is made to the holders of any stock other than the Class A Preferred stock. "
The dividends on the preferred stock accrued and unpaid amount to $64.50 per share, and the total priority of the preferred stock as provided by the corporate charter is $98,700,000.
"to take such action as the Commission shall find necessary in order that such holding company shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company."
Section 11(e) requires any plan of reorganization approved by the Commission to be "fair and equitable to the persons affected by such plan."
"is controlling, our inquiry must perforce be ended at this point in a decision that the preferred stock is entitled to all the assets of the corporation to the exclusion of the common."
value of their interests as though the liquidation which the Commission had ordered were not to take place and the corporation were to continue as a going concern. In short, in liquidating the corporation, it determined, as the opinion of the Court declares, that, in distributing the assets of the corporation among its stockholders, the rights of the stockholders "may be evaluated on the basis of a going business, and not as though a liquidation were taking place."
which has been in fact condemned to death by the Commission, is, as the Commission at the same time supposes, to be regarded as living and functioning as "a going business."
The judgment of the court below sustaining so extraordinary a result should, in our opinion, be reversed because the Commission, without authority in law and contrary to the command of the statute, has disregarded the plain terms of the corporate charter controlling priority of the preferred stock upon liquidation of the company, whether voluntary or involuntary.
The opinion of the Court adopts for its support a ground which the Commission declined to adopt, and the decision of the Commission rested upon a second ground on which the Court appears not to rely. We think it clear that neither ground is supportable. The first is that the charter provision fixing the priority of the preferred stock in the event of "liquidation" was not intended to apply and is inapplicable to a "liquidation" like the present. For here, it is insisted, the liquidation, which has in fact been ordered and is being enforced, is nevertheless to be regarded as a fiction, and the interests of the different classes of stockholders are to be measured by resort to the fiction that they are continuing interests in a corporation which is not to be liquidated, but is to be continued as a going concern. The other ground, adopted by the Commission, is that, if the charter provision does apply, the Commission is free to override it by any plan of distribution which it finds to be "fair and equitable."
conditions on which the priority provision was, according to its terms, to operate, it is not apparent why this "liquidation" is not a "liquidation" within the meaning of the charter provision.
It is said that, although the liquidation is involuntary, it is not within the charter provision, and that the stipulation for priority on liquidation may be disregarded because the Holding Company Act was enacted after the adoption of the charter, and hence the parties to the incorporation could not have contemplated a compulsory liquidation under its provisions. We find it difficult to suppose that a stockholder who stipulates for priority upon liquidation, whether voluntary or involuntary, is at all concerned with the particular source of the power which may compel the liquidation of his investment or with the purpose of its exercise. Unless words have lost their meaning, the stipulation for priority in this case cannot fairly be taken not to include any kind of a liquidation which would compel the surrender of the stockholder's investment and force him to sever his connection with the corporation in which he has invested.
payable on the death of the insured creates no obligation if the insured dies from a disease which was unknown when the policy was written.
We cannot assent to the proposition advanced by the Commission that, even though the priority stipulation was intended to be applicable to any kind of an involuntary liquidation, including one such as the present, the Commission can nevertheless override it. Such provisions for priority in a corporate charter constitute a contract among the stockholders, which is entitled to constitutional protection, Bedford v. Eastern Building & Loan Assn., 181 U. S. 227; Hopkins Federal Savings & Loan Assn. v. Cleary, 296 U. S. 315; Treigle v. Acme Homestead Assn., 297 U. S. 189, 297 U. S. 194, 196, impairment of which is not lightly to be attributed to Congress. No constitutional issue is raised here, but we find no provision of the statute which purports to confer on the Commission, in the exercise of its power to liquidate a corporation, any authority to set aside a lawful stipulation in which the stockholders have joined fixing their relative rights in the event of liquidation.
On the argument of this case, counsel for the respondent referred to the Commission's action in setting aside the contract as an exercise of its power to "remold" the contract. Whether this characterization of the Commission's action may be thought to render it more palatable to the preferred stockholders whose lawful contract has been set aside by the Commission, it is plain that, in the absence of some controlling direction of the statute, there are no circumstances here which call for the exercise of any implied power of the Commission or court to readjust or restate the rights of the stockholders without regard to their contract. There is no suggestion that the present stipulation is unlawful, oppressive or inequitable, or subject to any other infirmity, or that it is incapable of being carried out in the present liquidation to which it applies.
Hence, there is no basis for the exercise of equity powers to adjust the rights of parties to a contract which has been set aside; or for the Commission's argument, which the Court of Appeals below seems to have sustained, 142 F.2d 411, 419, that the action of the Commission is supportable as an exercise of the judicial power to make an equitable disposition of the rights of the parties to a frustrated contract. Cf. New York Trust Co. v. Securities and Exchange Commission, 131 F.2d 274.
So far as the Commission has authority to liquidate any corporation, liquidation is only a step in the simplification of a holding company system or the elimination of an undesirable holding company, which are the avowed purposes of the Act. The Commission does not reveal how the distribution of the corporate assets, upon which the stockholders have agreed, would hamper the simplification or the elimination of the liquidated company, or how the different distribution ordered by the Commission would facilitate them. It seems wholly irrelevant to the achievement of these, which are the avowed purposes of the Act, whether the stockholders of the dissolved corporation share in its assets in one proportion or another. Neither the Commission, the public, nor the stockholders have any ground for complaint so long as the agreed priority rights to the distributed assets remain unaltered.
of the preferred is contrary to the priority stipulation by which both are bound. The common stockholders, like the preferred, have no right not to have the company liquidated, and are entitled to no compensation merely because it is liquidated. Their rights as stockholders cannot survive liquidation and dissolution of the company, and, in that event and because of it, and because of the stipulation, neither can assert rights which they could enjoy only if the corporation were to continue as a going concern.
We can find no basis for saying that it is not fair and equitable, both in a technical as well as a general and nontechnical sense, to require the stockholders to abide by their agreement in the very circumstances to which it was intended to apply, and where, as we have said, there is no contention that the contract when made was or is now oppressive, unfair, inequitable or illegal. But, beyond this, we think it is quite clear that the requirement of § 11(e) that the plan be "fair and equitable," instead of furnishing authority for the deprivation of shareholders of their priority in liquidation, is a prohibition against it.
The phrase "fair and equitable," as applied to any form of corporate reorganization, has long been recognized as signifying the requirement of the rule sanctioned by this Court in Northern Pacific R. v. Boyd, 228 U. S. 482, and the many cases following it. The rule is that any arrangement or plan enforced without the consent of the parties affected by it, by which the subordinate rights and interests of stockholders are attempted to be secured at the expense of the prior rights of other security holders, is unfair and inequitable, and will not be judicially sanctioned. See Case v. Los Angeles Lumber Co., 308 U. S. 106, and cases cited. This rule is applicable with respect to the priorities of different classes of stockholders, as well as to priorities between creditors and stockholders, and for the same reasons. Case v. Los Angeles Lumber Co., supra, 308 U. S. 119, note 14.
In the Los Angeles case, supra, we held that the words "fair and equitable" had so long been recognized and applied as signifying this rule of priority among security holders in corporate reorganizations as to have become words of art, and that their adoption by § 77B of the Bankruptcy Act, as applicable to reorganizations under that section, must be taken to have incorporated the rule of the Boyd case in the statute, in the absence of any context requiring a contrary construction. We think no other constitution of § 11(e) of the present Act can be sustained. Neither the context of the statute nor the legislative history suggests any other. The Commission hints at no reason for not giving these terms of art, "fair and equitable" other than their long settled and hitherto accepted meaning.
The Commission justifies its departure from the rule here only by recurrence in its brief to the proposition that "the essence of the reorganization process is the remolding of contract rights and the substitution therefor of equitable equivalents." To this, the answer is that the Commission in this case is liquidating and dissolving, not reorganizing, United, and that it is without authority in such a case more than in a reorganization to alter or disregard a contract fixing the priorities of stockholders, and that, in depriving the preferred stockholders of their priority rights, the Commission has substituted no equivalent for them, either legal or equitable. In fact, it has substituted nothing for the priority rights which its order destroys.
not to be disturbed in liquidations ordered under the Public Utility Holding Company Act. The report of the Senate Committee (S.Rep. No. 621, 74th Cong., 1st Sess., p. 33) recommending the enactment of the present statute and proponents of the Bill (H.R.Rep. 1318, 74th Cong.1st Sess., pp. 49-50; 79 Cong.Rec. 4607, 8432) repeatedly cited Continental Insurance Co. v. United States, supra, in which it was held that the distribution in a liquidation compelled by the enforcement of the Sherman and Hepburn Acts must preserve the stipulated priorities of the several classes of stockholders of the offending corporation.
accept on liquidation less than their stipulated priority on liquidation and less than the rights to which they would have been entitled if the corporation had continued as a going concern.

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