declaration. When Congress wrote the four months proviso into § 2 (a) (21) it was not writing on a clean slate. The presence of that proviso suggests the type of problem with which Congress was dealing. Straton v. New, supra, indicates the importance of that period in a determination of what liens did not survive bankruptcy and when bankruptcy proceedings superseded prior proceedings. The 1938 Act, like its predecessor, makes the four months period part of the critical test for determining what liens do not survive bankruptcy. One example is to be found in § 67a (1) which provides that liens "obtained by attachment, judgment, levy, or other legal or equitable process or proceedings within four months" of bankruptcy are null and void on certain conditions. That section illustrates the relevancy of the four months period to this type of problem. If § 2 (a) (21) is read to extend the power of the bankruptcy court to the present situation," the four months period will have acquired a new significance in bankruptcy law. We cannot help but think that if Congress had set out to make such a major change, some clear and unambiguous indication of that purpose would appear. But we can find none. Moreover, such an interpretation would lead in many cases to a division of authority between state and federal courts. Thus in this case the state court would remain in charge of the foreclosure; the bankruptcy court would have exclusive control over the receiver's receipts. An interpretation which leads to a division of authority so fraught with conflict will not be readily implied.

We do not reach the question, reserved in Duparquet Huot & Moneuse Co. v. Evans, 297 U. S. 216, 224, whether the appointment of a foreclosure receiver might be an act of bankruptcy under § 3 (a) (5). See In re 211 East Delaware Place Bldg. Corp., 14 F. Supp. 96. It was suggested in Randolph v. Scruggs, 190 U. S. 533, 536, that bankruptcy superseded a general assignment for the benefit of creditors made within the four months period since the making of the assignment was an act of bankruptcy. And see Remington, op. cit., § 2071.

Opinion of the Court.

318 U.S.

It is argued, however, that the provision in § 2 (a) (21) concerning proceedings under chapters X and XII indicates a purpose to include the type of receiver we have here. It seems clear that such a foreclosure receiver is included within § 2 (a) (21) where proceedings under Ch. X have supervened. But the fact that a foreclosure receiver is included for one purpose does not necessarily mean that he is included for another. Plans of reorganization under Ch. X may (§ 216) and commonly do affect the rights of mortgagees. Hence § 148 provides that an order approving a petition under Ch. X operates to stay a pending mortgage foreclosure or other proceeding to enforce a lien against the debtor's property. And § 256 and § 257 provide that the trustee (or debtor) acquires all rights in, and the right to immediate possession of, the property of the debtor under the control of a receiver or trustee appointed in a prior proceeding in any federal or state court. That is to say, a Ch. X proceeding supersedes a pending mortgage foreclosure. We thus find § 2 (a) (21) performing the same function when applied to Ch. X proceedings as it does when applied to ordinary bankruptcy. We conclude that the Circuit Court of Appeals was correct in reading the word "receivers" distributively. Such a construction fits the statutory scheme as a whole. The other interpretation results in a distortion which the language of § 2 (a) (21) makes unnecessary and which its history does not warrant.

7

Little need be said about § 69d. It must be read in connection with § 2 (a) (21). The legislative history suggests that it, too, was designed to apply only where bankruptcy superseded the prior proceedings. H. Rep. No. 1409, supra, p. 12. As stated by the draftsman, "It makes

"And unlike proceedings under § 77B (Duparquet Huot & Moneuse Co. v. Evans, 297 U. S. 216), a mortgage foreclosure is adequate under certain conditions for a creditor's petition under Ch. X. § 131 (4).

7 Similar considerations are applicable to real property arrangements under Ch. XII. §§ 406 (1), 411, 416, 428.

clear and certain the exclusive and paramount jurisdiction of the bankruptcy court over property dealt with in a prior equity receivership or like proceeding which is superseded by a bankruptcy proceeding." Weinstein, op. cit., p. 154. And see 4 Collier, op. cit., pp. 879-882.

Affirmed.

MR. JUSTICE RUTLEDGE did not participate in the consideration or decision of this case.

GROUP OF INSTITUTIONAL INVESTORS ET AL. v. CHICAGO, MILWAUKEE, ST. PAUL & PACIFIC RAILROAD CO.*

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

No. 11. Argued October 14, 15, 1942.-Decided March 15, 1943.

Upon review of a judgment of the Circuit Court of Appeals which reversed an order of the District Court approving a plan, certified to it by the Interstate Commerce Commission, for reorganization of the Chicago, Milwaukee, St. Paul & Pacific Railroad Company under § 77 of the Bankruptcy Act, held:

1. The Commission's conclusion that the equity of holders of the debtor's preferred and common stock was without value, and that

*Together with No. 12, Group of Institutional Investors et al. v. Union Trust Co. et al.; No. 13, Group of Institutional Investors et al. v. Abrams et al.; No. 14, Group of Institutional Investors et al. v. Orton et al.; No. 15, Group of Institutional Investors et al. v. Guaranty Trust Co. of New York et al.; No. 16, Group of Institutional Investors et al. v. Chicago, Terre Haute & Southeastern Ry. Co. et al.; No. 17, Group of Institutional Investors et al. v. United States Trust Co. of New York, Trustee; No. 18, Group of Institutional Investors et al. v. Trustees of Princeton University et al.; No. 19, Group of Institutional Investors et al. v. Glines et al.; and No. 32, Reconstruction Finance Corporation v. Chicago, Milwaukee, St. Paul & Pacific Railroad Co. et al., also on writs of certiorari, 316 U. S. 659, to the Circuit Court of Appeals for the Seventh Circuit.

they were therefore not entitled to participate in the reorganization, was sustained by the reasons and supporting data set forth in the Commission's report on the plan. P. 536.

(a) The Commission is not required by the Act to formalize in findings the extensive data on which it relied in the exercise of its expert, informed judgment. P. 539.

(b) Nor was the Commission required to make a precise finding as to the value of the company's properties in order to eliminate the old stock from the plan. P. 539.

(c) A finding as to the precise extent of the deficiency is not material or germane to the finding of "no value" prescribed by § 77 (e) P. 539.

(d) If it is established that there is no reasonable probability that the earning power of the road will be sufficient to pay prior claims of interest and principal and leave some surplus for the service of the stock, then the inclusion of the stock would violate the full priority rule, incorporated in § 77 by the phrase "fair and equitable." P. 541.

2. The criteria employed by the Commission for determining the permissible capitalization of the reorganized company were in accord with the Act. P. 539.

(a) Earning power is the primary criterion of value in reorganization proceedings under § 77. P. 540.

(b) The limited extent to which § 77 (e) provides that reproduction cost, original cost, and actual investment may be considered indicates that these factors are relevant, as in § 77B, only so far as they bear on earning power. P. 541.

3. The evidence of changed circumstances since the Commission's approval of the plan, was insufficient to require the District Court to return the plan to the Commission for reconsideration. P. 543. Earning power in war years is not a reliable criterion for the indefinite future. P. 543.

4. The contention that the ratio of debt to stock in the reorganized company results in unfairness to junior interests, is unsupported. P. 544.

(a) The nature of the capital structure, as well as the amount of the capitalization, is for the determination of the Commission in its formulation of a plan which will be "compatible with the public interest." P. 544.

(b) Questions of the ratio of debt to stock, the amount of fixed as distinguished from contingent interest, and the kind of capital structure which a particular company needs to survive the vicissitudes

of the business cycle,-are by the Act reserved for the expert judgment of the Commission, which the courts must respect. P. 545. 5. There is no justification in this case for further delay in effectuating the reorganization. P. 545.

6. The effective date of a plan of reorganization under § 77 need not be the date of the filing of the petition. P. 546.

Section 77 does not preclude the accrual of interest on secured claims after the date of the filing of the petition for reorganization.

7. The proposed modifications of the lease of the Terre Haute properties, with the alternative of rejection of the lease in the event of failure of acceptance of the modifications, were valid. P. 549.

(a) The provisions of § 77 authorize the Commission (and the District Court), in approving a plan of reorganization, to condition acceptance of a lease on terms which are necessary or appropriate to keep the fixed charges within proper limits or to do equity between claims which arise under the lease and other claims against the debtor. P. 550.

(b) The determination of the Commission and the District Court as to whether a lease should be rejected, or, if not, on what terms it should be accepted, ought not to be set aside upon review, except on a clear showing that the limits of discretion have been exceeded. P. 551.

(c) The provision of the plan that the Terre Haute lease shall be rejected as of the date the District Court determines that the Terre Haute bondholders have not consented to the making of a new lease at a reduced rental, is valid. P. 551.

(d) In the event of rejection of the lease, pursuant to a plan of reorganization, operation subsequent to the commencement of the proceedings and prior to the rejection need not be for the account of the lessor. P. 552.

(e) When a lease is rejected pursuant to a plan, § 77 (c) (6) may not be so applied as to give the lessor or its creditors a disproportionate claim against the estate. P. 555.

8. The findings and conclusions of the Commission and the District Court with respect to the allocation of new securities to the holders of General Mortgage bonds, were adequate and proper. P. 555.

(a) That system mortgages should be substituted for divisional ones was a determination which was peculiarly within the province of the Commission to make. P. 558.

(b) The treatment of the General Mortgage bonds was not inequitable as compared with that accorded the 50-year bonds. P. 562.