The dis orders are appealable, while as to the latter the order must be final. tinction is sometimes overlooked,32 is always difficult to make when pertinent, and serves no useful purpose. Appellate jurisdiction would not be appreciably enlarged if an interlocutory order in a controversy arising in a proceeding in bankruptcy were made appealable. Under section 25 the time for taking an appeal in nonplenary litigation varies from a minimum of 30 days to a maximum of 40 days depending upon the service of a notice of the entry of the order. Prior to the recent amendments of the Federal rules the general time for an appeal in a civil action, which included a plenary action brought by the receiver or trustee pursuant to section 23,33 was 3 months from the entry of the judgment.34 Under the amendments, which have now become effective, the time for appeal is in general reduced to 60 days in Government cases and 30 days in other cases.35 Normally then the time for appeal under the Federal rules is 30 days and in the interest of uniformity the time prescribed in section 25 should be conformed to the Federal rule. The requirements of section 59b relative to the type of claims which the petitioning creditors must have are too onerous. First, there is a requirement that the claims be "fixed as to liability," which taken in conjunction with the somewhat parallel language in section 63a (1) creates an inference that the claims must be established by a judgment or an instrument in writing. This misleading inference can be cured by providing that the provable claims "be matured and not contingent." "36 The motivation behind the further requirement that the claims be "liquidated as to amount" was to avoid the necessity of determining a contest collateral to the principal issue.37 But the language goes far beyond the proper objective. Thus A may not be qualified to be a petitioning creditor where his unsecured claim is unliquidated although there is no doubt that far more than $500 is due him,38 or where he has a large claim that is partially secured and the value of the security cannot be stated with certainty, although it is clear that its value could not possibly reduce A's unsecured claim to $500.39 This should be remedied. And where the creditors are less than 12 in number section 59b literally allows only 1 creditor to be a petitioner, although there is no sound reason why more than 1 should not be allowed to join as petitioners. In computing the number of the debtor's creditors for the purpose of determining how many creditors must join as petitioners, section 59e should be coordinated with section 56c by excluding from the computation those creditors holding claims of $50 or less.40 Without departing from the general policy underlying section 64a (2) which limits the priorities for wages to those earned within 3 months of bankruptcy, an exception should be made to protect wage earners in cases where bankruptcy supersedes some prior insolvency proceeding. For example, if the debtor-employer files a bankruptcy petition his employees are protected by the second priority. If on the other hand, he makes a general assignment and almost 41 months later his creditors precipitate him into bankruptcy, the wage earners lose all or part of their priority for wages, due solely to the shift from one liquidating forum to another.41 31 Goldie v. Carr, 116 F. 2d 335 (C. C. A. 9th 1940). 32 Long Beach v. Metcalf, 103 F. 2d 483 (C. C. A. 9th 1939). The court was in possession of property in a summary proceeding by the trustee which was essentially a quiet title action, clearly a controversy in a proceeding in Bankruptcy. An appeal was allowed from an order overruling defendant's motion to dismiss for want of jurisdiction. 33 2 Collier pars. 24.10, 25.02. 34 26 Stat. 829 (1891), 43 Stat. 940 (1925), 28 U. S. C. sec. 230 (1940). 35 Fed. R. Civ. P., 73 (a). The district court may extend the time for appeal not exceeding 30 days "upon a showing of excusable neglect based on a failure of a party to learn of the entry of the judgment of the district court." Government cases are those "in which the United States or an officer or agency thereof is a party." 36 Before 1938 contingent claims were unprovable under sec. 63a and could not be the basis of an involuntary petition under sec. 59b. The Chandler Act made contingent claims provable under sec. 63a (8). The words "fixed as to liability" were added in sec. 59b to continue the old rule under that section. This language is criticized in Morgan, sec. 59b of the Chandler Act: An Impediment to Involuntary Bankruptcy Proceedings, 37 Ill. L. Rev. 215, 217-218 (1942). 37 Analysis of H. R. 12889, 74th Cong., 2d sess. 184 (1936). See 3 Collier par. 59.14 (supp. 1946). 38 Cf. Morgan, op. cit. supra note 135, at 217. 39 See In re Central Illinois Oil & Refining Co., 133 F. 2d 657, 660 (C. C. A. 7th 1943). 40 3 Collier par. 59.20. See Security Bank & Trust Co. v. Tarlton, 294 Fed. 698 (W. D. Tenn. 1923), for an example of the plight of 1 large creditor where there are more than 11 other creditors with inconsequential claims. In that case the court refused to count the creditors with triflng claims. Other courts have counted such creditors because sec. 59e does not specifically exclude them. E. g., Grigsby-Grunow Co. v. Hieb Radio Supply Co., 71 F.2d 113 (C. C. A. 8th 1934). 41 E. g., Strom v. Peikes, 123 F. 2d 1003 (C. C. A. 2d 1941); In re Ko-ed Tavern, 129 F. 2d 806 (C. C. A. 3d 1942). Also desirable would be a corresponding amendment to the general priority statute, Rev. Stat. sec. 3466 (1875), 31 U. S. C. sec. 191 (1940), which gives absolute priority to debts due the United States where the debtor is insolvent or the estate of the deceased debtor is insolvent. Wage claims given priority by State law should be allowed ahead of debts due the United States. The hardship produced by the present statute is illustrated by United States v. Emory, 314 U. S. 423 (1941). Section 67d (3) needs restatement. This paragraph denounces as fraudulent any transfer made with intent to use the consideration to effect a voidable preference. The provision was written into the act in 1938 as a purported restatement of the rule of Dean v. Davis, 42 which presented an extreme situation. The debtor fearing arrest because of forged notes which had been given to a bank persuaded his brother-in-law to take up the notes in return for the debtor's promise to mortgage all his property to secure the advance. The debtor was known by his brother-in-law to be hopelessly insolvent; due to acceleration clauses in the debtor's notes to his relative the latter had the right to proceed to enforce his mortgage immediately and did so. The Supreme Court stressed the fact that this was not a good-faith commercial transaction to enable the debtor to continue his business, but a device to enable the debtor to make a preferential payment with bankruptcy in contemplation. Section 67d (3) literally embraces not only the Dean v. Davis situation but any situation where the debtor is insolvent, borrows money, and gives security, with the intent to use the money to pay off some of his unsecured creditors. This latter situation should not be denounced as fradulent inasmuch as the debtor is making a bona fide attempt to carry on his business; insofar as he makes preferential payments section 60 gives his creditors adequate protection. In one respect section 67d (3) imposes an unsound limitation on the Dean v. Davis doctrine. The section requires the preferential payment to be voidable which means that the preferee must have had reasonable cause to believe that the debtor was then insolvent. If the debtor mortgages his property in contemplation of bankruptcy with intent to use the proceeds to make preferential payments it should be wholly immaterial whether the preferences are voidable; if anything, the estate needs greater protection in the case where the preference is not voidable. Section 67d (6) should be revised to afford the trustee the right to preserve a fraudulent lien for the benefit of the estate. Prior to the Chandler Act of 1938, former section 67b gave the trustee a general right to preserve voidable liens.4* The act of 1938 eliminated that provision and gave the trustee a right to preserve both voidable preferential and judicial liens; 45 it inadvertently failed, however, to give the trustee the same right to preserve liens voidable under sections 67d and 70e.46 The conference proposes to cure this omission by an amendment of section 70e, but fails to make a similar proposal as to section 67d. A similar amendment of section 67d (6) is in order. A more summary and less elaborate corporate reorganization procedure should be afforded for small corporations. Superficially chapter XI offers such a procedure, but since under chapter XI neither secured debt nor stockholders' interests can be affected 48 the chapter is largely abortive as to corporations. The small corporation which needs relief from secured debt and is such a going concern that it deserves rehabilitation rather than liquidation must come within the elaborate provisions of chapter X.49 And many corporations, large or small, which need relief only from unsecured debt, find chapter XI a delusion. Under its provisions, the court is barred from dealing with stockholders' interests, and therefore the arrangement must be at the expense of creditors, to the advantage of stockholders, and hence cannot meet the absolute priority standard demanded by the requirement that the arrangement be fair and equitable.50 Only where the 42 242 U. S. 438 (1917); 4 Collier par. 67.38. 43 4 Collier par. 67.41. Former sec. 67f, which provided for the avoidance of liens obtained through judicial proceedings while the debtor was insolvent within the 4-month period, also gave the trustee power to preserve the lien he had avoided for the benefit of the estate. The Chandler Act retained this provision, moving it to sec. 67a (3). Under the amendment of sec. 60b by the act of 1938 the trustee is given comparable power to preserve avoidable preferential lien or title. 44 Sec. 60b. See note 142 supra; 3 Collier par. 60.65. 45 Sec. 67a (3). See note 142 supra; 4 Collier par. 67.16. 46 As to the omission in sec. 70e, see 4 Collier par. 70.92. 47 Under ch. XI the debtor may be permitted to retain control of its property, sec. 342, must formulate a plan before the petition is filed, and submit it with the petition, sec. 323, and may solicit acceptances at any time. See Montgomery, ch. XI of the Bankruptcy Act, 15 J. N. A. Ref. Bankr. 16 (1940). 48 Secs. 306 (1), 356, 357. 49 Among other things, a ch. X petition must state "the specific facts showing the need for relief under this chapter and why adequate relief cannot be obtained under ch. XI of this act." Sec. 130 (7). Secs. 141 and 143 of ch. X require the judge to dismiss the petition if he is not satisfied that it was filed in good faith. Sec. 146 of ch. X provides that a petition shall not be deemed to have been filed in good faith if, inter alia, adequate relief would be obtainable under ch. XI or if "it is unreasonable to expect that a plan of reorganization can be effected." See also note 152 infra as to some of the safeguards provided by ch. X. For a brief discussion of the relationship between chs. X and XI, see 6 Collier par. 0.12. 50 Securities and Exchange Comm'n v. United States Realty & Improvement Co. (310 U. S. 434 (1940)), see note 8 supra and accompanying text. stock is closely held and all the holders either can be said to contribute value in the form of experience or managerial talent to the concern or will voluntarily make other contributions can the arrangement meet the strict absolute priority test.51 A small improvement can be made by incorporating a provision in chapter XI, comparable to section 147 in chapter X, to allow a corporate petition, improperly filed under chapter XI because adequate relief can only be obtained in chapter X, to be transferred to that chapter. But what is especially needed is to provide, within the framework of chapter X, a summary method of reorganization for the small corporation that is comparable in speed and facility to the arrangement procedure of chapter XI. A corporation whose scheduled indebtedness does not exceed, for example, $3,000,000 52 might well be treated as a small corporation, and allowed to remain in possession of its property, propose a plan and solicit acceptances immediately upon the initiation of the reorganization proceeding. Reference of the plan to the Securities and Exchange Commission for report could still be retained as a safeguard, but after the requisite acceptances of the plan are obtained a speedy confirmation hearing should be possible. Such a summary reorganization procedure should, of course, be made subject to the court's power to transform it into a regular reorganization, appoint an independent trustee, and have the plan formulated under all the present elaborate safeguards found in chapter X.53 This chapter was written primarily with the large corporation in mind and its carefully designed provisions should not be relaxed as to such a corporation. They should also be held in reserve for the small corporation where there is evidence of managerial fraud, or where there is likelihood of overreaching on the part of any class of creditors or stockholders due to the financial complexities of the corporation. The time and expense demanded by the present reorganization procedure of chapter X are justified in the case of the large corporation and for the small corporation just described. But a speedier and cheaper reorganization procedure should be available for the small and honestly managed corporation with a simple capital structure. CONCLUSION The Chandler Act of 1938 has proved to be an excellent piece of legislation, carefully conceived and well drafted. While no one doubts that this legislation can be improved, and that after 10 years an undertaking of the task is in order, nevertheless the same unhurried and disinterested care should go into the amending process that went into the original formulation. Proponents of substantial change must assume the burden of demonstrating the desirability of their proposals. The bills to amend section 60 are the product of unwarranted alarm, aid secret financing, and are an uncertain retreat to pre-Chandler days. The bona fide purchaser test as expounded by the Supreme Court in the Klauder case and by the third circuit in the Rosen case is sound and should be retained. The proposal to add as section 70i a Federal filing act for the assignment of accounts receivable is salutary in hitting at secret financing. The provisions of the tax bill are impracticable, but when put in feasible form they may be properly interwoven into an extensive revision. The Borah Act should be retained. The conference's noncontroversial amendments and those which we propose by way of supplementation can properly await the final completion of the over-all revision. Piecemeal revision of the Bankruptcy Act is not desirable and an adequate overhauling of the act is not feasble at this session of Congress. 51 Case v. Los Angeles Lumber Products Co. (308 U. S. 106 (1939)); see note 10 supra and accompanying text. 52 $3,000,000 is the figure which determines whether the SEC shall pass on the plan under ch. X. If the scheduled indebtedness exceeds that sum, the SEC must examine the plan and report on it. The judge may submit the plan to that agency even if the scheduled indebtedness is less than that amount. Sec. 172. This figure was apparently selected with a view to delineating the small cases in which "the situation is so simple that it is wholly maneagable by the court." Hearing before Committee on Judiciary on H. R. 6439, 75th Cong., 1st sess. 178 (1937). The figure was reduced from an original $5,000,000, H. R. Rep. No. 1409, 75th Cong., 1st sess. 45 (1937). 53 These include the appointment of a disinterested trustee, sec. 156, an investigation of the affairs of the debtor, sec. 167, the formulation of a plan by the trustee, sec. 169, cf. sec. 168, examination of the plan by the SEC, secs. 172-3, and judicial regulation of creditors' committees, sec. 176. APPENDIX So-called noncontroversial amendments proposed by H. R. 5693 Section amended Proposed change la (24). (30). 2a (21) 7a (8). lla... 14c (5).. 14e. 18a 21k.. 29d DEFINITIONS "Petition" redefined to mean a document, filed with court or clerk, "initiating a proceeding" under the act, and thus clearly includes an "original" petition under the reorganization and arrangement chapters. "Transfer" expanded to include "the retention of a security title to property delivered to a debtor". Purpose is to make preference section unequivocally applicable to conditional sales and similar security devices. This is not a change in the law as presently interpreted (3 Collier par. 60.43; cf. par. 60.44). CREATION OF COURTS OF BANKRUPTCY AND THEIR JURISDICTION Turn-over and accounting by nonbankruptcy receiver or trustee appointed more than 4 months prior to petition also to be required in proceedings under sec. 77; sec. 2a (21) now refers only to chs. X and XII. Original omission of reference to sec. 77 was inadvertent. DUTIES OF BANKRUPTS Permits bankrupt to show either place of business or residence of creditor in his list of creditors. SUITS AGAINST BANKRUPT Proviso requiring vacating stay of suit against bankrupt if he has been adjudi- GRANTING OF DISCHARGE Commencement of prior proceeding resulting in discharge or confirmation of plan or composition within 6 years bars discharge. Thus commencement of prior proceeding, when rights of former creditors became fixed, is determinative date instead of actual discharge or confirmation. Bankrupt's failure to appear at "hearing upon the objections to his application for a discharge," instead of "hearing upon his application for a discharge," bars discharge. Clarifying. PROCESS Insofar as service is not specifically regulated by sec. 18a, it is to be made in the same manner as in "a civil action," instead of in "a suit in equity." EVIDENCE Parties entitled to rights and remedies granted by "Rules of Civil Procedure *"instead of "rules of equity practice." OFFENSES-STATUTE OF LIMITATIONS In case of concealment of assets, statute of limitations is made to run from wairer or loss of right to discharge as well as from granting of discharge. To cure an omission (2 Collier par. 29.14). referee report completion of arrangements and Clarifying changes also. RECORDS OF REFEREES Requires records to be kept as prescribed by Supreme Court instead of as "kept in equity cases." The better approach would have been to give the power of prescription to the Director of the Administrative Office of the United States Courts, subject to the approval of the Judicial Conference of Senior Circuit Judges, in line with Federal Rule 79 (a). PROOF AND ALLOWANCE OF CLAIMS (Newly numbered.) Interest on debt due State or Federal Government for So-called noncontroversial amendments proposed by H. R. 5693-Continued 57n.. Section amended 58a (8) 63c. 64a (1).... 64b. 67a (1), (2), b, c.. Proposed change PROOF AND ALLOWANCE OF CLAIMS-continued except in proceedings under chapters X, XI, XII, and XIII of this Act" infants and insane persons without guardians, and without notice of bankruptcy proceeding, now have 6 additional months to file claims. The "except" clause is deleted as useless and perhaps confusing due to the general inapplicability of sec. 57n to the proceedings covered by it. NOTICES Creditors to be given notice of applications by "committees" for compensation for services rendered as well as applications by receivers, ancillary receivers, marshals, trustees, and attorneys. DEBTS WHICH MAY BE PROVED A verbal change is made to conform to the redefinition of "petition" in sec. la (24). DEBTS WHICH HAVE PRIORITY Filing fees advanced to a voluntary bankrupt are made reimbursable and accorded a first priority. Expenses incurred by the trustee "in connection with the criminal prosecution of an offense punishable under this Act or an offense concerning the business or property of the bankrupt punishable under other laws, Federal or State" are made compensable and given first priority. This meshes with present sec. 29e(1) and is clarifying. Where in a proceeding under another chapter of the act it is ordered that bankruptcy be proceeded with, expenses of the ensuing bankruptcy are given priority over unpaid administration costs and expenses of the superseded proceeding and suspended bankruptcy proceeding, if any. This changes the present law (6 Collier, par. 12.05 [4]), and probably is desirable as promoting an effective final consummation of the proceeding. Repealed because of its inadequacies. (See 3 Collier, par. 64.601 and supplement.) Thus priority is eliminated of debts contracted between grant of a discharge and subsequent revocation. Sec. 64b accorded a priority to debts contracted in the interim between the confirmation of an arrangement and its annulment. This problem is now dealt with by new secs. 239, 379, 484, and 668, infra. LIENS AND FRAUDULENT TRANSFERS Subdivisions a, b, and c deal respectively with the avoidance of judicial liens, the recognition of statutory liens, and the subordination and restriction in the amount of payment of statutory liens in certain very limited situations. Verbal changes are made in these subdivisions to conform to the redefinition of "petition" by sec. la (24). H. R. 5829 would amend sec 67c to invalidate unenforced liens on personal property unaccompanied by possession, except liens for taxes, wages, and rent. (See p. 701 supra.) 67d (2), (3), (4), (5)................... Subdivision d deals with fraudulent transfers and, with the exception of pars. (3) and (5), is a substantial adaptation of the Uniform Fraudulent Convey. ance Act (4 Collier, pars. 67.29, 67.38, 67.40). Par. (3) is supposedly a restatement of the rule of Dean v. Davis. (See p. 714, supra.) Verbal changes are made in pais. (2)-(5) to conform them to the redefinition of "petition" by sec. la (24). Par. (5) states when a fraudulent transfer is deemed perfected. The words "and no creditor" are deleted from the bona fide purchaser and creditor perfection test since a fraudulent transfer is never perfected as against a creditor until the statute of limitations has barred creditor relief. Thus a transfer is deemed made when it becomes so far perfected that no bona fide purchaser from the debtor can obtain rights in the property superior to the transferee, or, if not so perfected, then immediately before the initiation of a proceeding under the act. If this change is to be made here then a similar change should be made in sec. 3b dealing with the running of the 4-month period relative to the first act of bankruptcy-a fraudulent transfer. (See p. 709, supra.) There is still a failure to provide that the trustee may preserve the transfer or obligation for the benefit of the estate as he may presently do under secs. 60b, and 678 (3), and as it is proposed to allow him to do under amended sec. 70e (2), infra. (See pp. 714-715, supra.) 69d. 70a. 70e (2).. TAKING POSSESSION OF PROPERTY Conformed to sec. 2a (21) by including "an assignee for the benefit of creditors of a bankrupt, or an agent authorized to take possession of or to liquidate any of the property of a bankrupt" as among those who must account to the bankruptcy court. This is only a clear statement as to what was the necessary intent of the act (4 Collier, par. 69.06, note 1). TITLE TO PROPERTY A verbal change is made relative to the time when the trustee's title vests to conform the subdivision to the redefinition of "petition" by sec. la (24). Subdivision e allows the trustee to invalidate a transfer or obligation which, under Federal or State law (normally the latter), is voidable by a creditor having a claim provable in bankruptcy. The amendment would allow the trustee to preserve the transfer or obligation for the benefit of the estate and thus cure, in part, an omission in the present act. (See 4 Collier 354, 1501.) |