back the first plan and said "Look at the changes which have occurred in the earnings and in the assets of the company," and asked the Commission to do so, and to say whether, in view of that, it should not modify the plan. It made scarcely any modification at all.

The new plan came into court and finally Judge Moore approved that. We are in the court of appeals.

Now, in the meantime, all of the creditors, as I understand it, and the debtor, have agreed upon a plan of reorganization which they have asked the court to send to the Commission.

In other words, dismiss the proceedings as they are now, and go back to put in the plan everybody has agreed to.

At present I am attorney for the protective committee for common stockholders of Missouri Pacific Railroad Co. I have represented that committee before the Interstate Commerce Commission for the entire period since shortly before promulgation by the Interstate Commerce Commission of the original plan of reorganization. I receive no compensation for appearing before this committee in support of S. 249 and the amendments proposed by Senators Reed and Myers. My compensation as attorney for that committee has been limited to services before the Commission and the courts paid out of the trustee's estate, as the Commission makes no allowance nor do the courts for services such as appearances before the committees of the House and Senate considering proposed legislation.

I was cotrustee with P. H. Joyce, president of the Chicago Great Western Railroad Co. in the section 77 proceedings relating to that carrier which were terminated in 1941. Later I was attorney for the debtor, Chicago & North Western Railway Co., in the proceedings in the District Court of the United States for the Northern District of Illinois in its consideration of a plan of reorganization for that carrier as approved by the Interstate Commerce Commission. My services. were terminated on January 6, 1944, and formal withdrawal of myself as attorney for the debtor was authorized by the district court on January 7, 1944.

I am appearing here in support of S. 249 and the amendments proposed by Senators Reed and Myers as contained in the subcommittee print of May 8, 1947, because I think such legislation will make impossible the injustice in pending proceedings which resulted from the Chicago & North Western plan and the procedure followed in making it effective. While the plan of reorganization of that railroad became effective July 1, 1944, a recital of the steps in that case may be helpful in framing just legislation for the future.

S. 249 authorizes a railroad threatened with financial difficulties to agree with its creditors as to an adjustment of its debt obligations, but under the bill no carrier now in section 77 proceedings can invoke the proceedings set forth in the bill. Section 1 of the amendment strikes out from S. 249, page 3, line 8, the parenthetical clause which would restrict the application of S. 249 to a carrier other than "a carrier in equity receivership or in process of reorganization under section 77 of the Bankruptcy Act," so that the provisions for voluntary adjustment of obligations would apply alike to carriers not in receivership or in section 77 proceedings and to carriers such as Missouri Pacific and Rock Island now in section 77 proceedings. If it be regarded as desirable for a carrier not now in bankruptcy proceedings to readjust its difficulties of a financial nature in the future

by agreement with its creditors, subject to the approval of the Interstate Commerce Commission, it certainly is as desirable to permit a carrier in section 77 proceedings likewise to make an agreement with its creditors to solve its present financial difficulties, under the same rules and procedure as are provided for the carrier not now in financial difficulties but which may, unhappily, find itself in financial difficulties in the future.

A brief statement of what happened in the Chicago & North Western reorganization is as follows:

The Commission's plan of reorganization of Chicago & North Western as approved April 2, 1940, provided for a maximum capitalization of $449,974,309, which included $13,100,000 of bonds and $13,100,000 of preferred stock, the proceeds of which were to be used for additions and improvements after the termination of bankruptcy, leaving a net maximum capitalization as of the date of reorganization of $423,074,309. The principal obligation of that debtor as of the date of bankruptcy, June 28, 1935, was a claim of the Reconstruction Finance Corporation in the principal amount of $42,250,133 on notes bearing a rate of interest at 5 percent or 6 percent. The accumulated interest as of December 31, 1938, aggregated $6,934,772. To secure the payment of these notes and the accrued interest, Reconstruction Finance Corporation held collateral of $101,813,800. The Commission's plan proposed to be made effective January 1, 1939, gave the Reconstruction Fiannce Corporation the following securities of the reorganized company:

In addition the plan gave outright to Reconstruction Finance Corporation securities with a par value of $2,249,000, a total in outright possession of $85,950,008. In addition to the securities thus given to Reconstruction Finance Corporation the plan provided for collateral, to secure the 15-year notes in the amount of $25,000,000, in the sum of $49,883,800, making the total securities given to the Reconstruction Finance Corporation $135,883,808 in full settlement of its claim.

The plan likewise made provision in full for the claims of the banks and the Railroad Credit Corporation.

The next important claim was that of the holders of convertible bonds, the principal of which was $72,355,000 and accrued interest thereon was $14,316,302, making the total claim of the convertible bondholders $86,651,302. The Commission allowed these bondholders only $45,860,390 in securities of the new company with a loss in the sum of $40,790,912. In addition to this loss sustained by the convertible bondholders, the Commission wiped out the claim of preferred stockholders in the sum of $22,395,000, and all common stockholders in the amount of $158,440,300, the total loss of the bondholders and stockholders being $221,626,212.

At the time the Commission approved the plan of reorganization the total amount of cash in the bankrupt estate was approximately

$12,253,866. During the period of trusteeship, the cash position of the company was improved constantly until it amounted to some $84,000,000 by the end of 1942 and later to more than $100,000,000. In view of this cash position, counsel for the debtor on April 21, 1943, served on all parties to the reorganization proceedings a motion for leave to file a petition for an order directing the trustee to pay the Reconstruction Finance Corporation claim and for order transmitting the proceedings to the Commission or in the alternative for an order transmitting the proceedings to the Commission with direction to it to consider whether the plan should be modified to provide for payment of the Reconstruction Finance Corporation claim. On April 27, 1943, this motion for leave to file said petition was denied. In the meantime the court had approved the plan of reorganization and conformed the plan of reorganization. A petition for certiorari to review the affirmance by the circuit court of appeals of the approval of the plan by the district court was denied by the Supreme Court. Petition for rehearing was denied on May 17, 1943.

On May 21, 1943, the debtor filed a petition with the Interstate Commerce Commission requesting reopening of the proceedings for further hearing, and for modification of the plan, in view of the changed conditions, the vast increase in cash, and to modify the plan so as to pay the Reconstruction Finance Corporation in full. On June 4, 1943, the debtor filed a motion before the Commission for oral argument and leave to file briefs on the questions arising from the petition of May 21, 1943. On June 7, 1943, that motion was overruled and the petition denied by the Commission.

On July 1, 1943, the debtor filed a three-judge district court complaint to set aside the Commission order of June 7 refusing to reopen the proceedings and also its order approving the plan. On October 6, 1943, the court granted a motion to dismiss, filed by Interstate Commerce Commission, the United States, and by intervenors, Life Insurance Group Committee, and Mutual Savings Bank Group Committee, and dismissed debtor's complaint.

In the court proceedings to set aside the order of June 7, 1943, the Commission filed a pleading set forth that inasmuch as the petition. to modify the plan of reorganization had not been filed within 60 days of the entrance of order approving the plan, it was without jurisdiction. to reopen the proceedings to consider a modification of the plan. That view was sustained by the three-judge court. On direct appeal to the Supreme Court, that Court on December 20, 1943, granted the motions of the United States, of Interstate Commerce Commission, and of the two group committees and affirmed the decision of the district

court.

At the hearing on the matter of payment of the Reconstruction Finance Corporation claim, attorneys for Reconstruction Finance Corporation opposed any payment of the claim. On July 19, 1940, the Secretary of Reconstruction Finance Corporation by letter advised the court that it would upon request of the reorganization managers for Chicago & North Western Railroad Co. or of the reorganized Chicago & North Western Railway Co., after the plan became effective, execute and deliver an agreement to transfer and deliver to the new company, or its nominee, all of the new securities received by it under the plan of reorganization in payment of the indebtedness due it as of June 28, 1935, plus interest at 4 percent per annum on the principal amount,

less such dividends, interest, and other payments received between June 28, 1935, and January 1, 1939, also less the net proceeds of liquidation of the new securities and such of the old securities as would have been sold to the date of tender and payment, plus dividends and interest received on both the new securities and the old securities from January 1, 1939, to that date.

It is important to note that this agreement of the part of Reconstruction Finance Corporation to accept payment of its claim with interest at 4 percent was conditioned upon the plan becoming effec tive. The plan became effective and the proposed agreement was made effective; the result was that after the payment of the Reconstruction Finance Corporation claim, the surrender of its securities received under the plan, and the liquidation of the claims of the banks and Railroad Credit Corporation, resulted in a maximum capitalization December 31, 1944, of $344,923,873, which is $78,850,436 less than the capitalization found by the Commission to be reasonable as a maximum as of January 1, 1940.

Holders of convertible bonds could have received out of that $78,850,436 of authorized capitalization the same kind of securities for the portion of the claim which was disallowed in the sum of $40,790,912 and there would have been left $38,059,524 for liquidation of the claims of the preferred and common stockholders, the aggregate of which was $180,835,300. Thus, it is clear that had the claim of Reconstruction Finance Corporation been paid in full prior to the effective date of the plan with consequent release of its allotted securities, every creditor would have been paid in full with a substantial part of the capitalization available for apportionment to preferred and common stockholders.

As to the claim of the Commission that it had no authority to reopen a plan of reorganization to consider changed conditions where petition for such reconsideration is filed more than 60 days subsequent to the date of approval of the plan, I would call your attention to the fact that in the case of the Chicago great western plan of reorganization such a petition for modification of a plan was filed more than 60 days after the plan of reorganization had been approved and that the Commission denied the petition because of its being filed outside the 60-day period; however, on its own motion it modified the plan so as to provide sufficient working capital.

In the case of the Missouri Pacific the district court remanded the plan to the Commission for further consideration, particularly of changed conditions, accumulation of cash and increase in assets during the period between the date of the Commission's approval of the plan and the date of consideration of the plan by the district court. The Commission reconsidered the plan upon hearings but provided for a maximum capitalization of substantially the same as the former plan, ignoring the suggestion of the district court for an increase in capitalization which would have, at least, taken care of the junior creditors. That case is now pending in the Court of Appeals, on appeal from the order approving plan of reorganization. It is my understanding that all the creditors and the debtor in the Missouri Pacific case have agreed upon a compromise plan of reorganization which should take care of all claims of creditors and give a substantial participation by the stockholders. If S. 249 and the amendments proposed should become law, it is quite certain that this

compromise plan would be submitted to the Commission and with its approval would become final thus avoiding the tremendous loss now threatened to junior creditors and the stockholders. You can well understand why the protective committee for common stockholders of the Missouri Pacific desires the passage of S. 249 with its proposed amendments. Approximately 17,000 holders of capital. stock of the North Western lost all of their investments in the company and approximately 11,000 holders of convertible bonds lost more than $40,000,000 of their investments. Had the proposed legislation here under consideration been in effect the North Western plan would have been modified so as to protect all of the creditors and in part all of the stockholders. I urge the enactment of S. 249 with its amendments substantially in the form here submitted. I cannot see that any injustice will result to any interested parties.

I represent the protective committee for the Missouri Pacific common stockholders. We get a tin cup which we hold subject to the payment of all of the prior claims. Now, we would be greatly in favor of the Missouri Pacific revised plan which, as I understand it, would be exactly the kind of a plan that you propose here in your bill.

Senator HAWKES. In the case of the Missouri Pacific, you have almost come to a meeting of the minds, have you not?

Mr. WALTER. Exactly.

Senator HAWKES. That is not what I am talking about. I am talking about these other cases such as the New York, New Haven and Hartford, and the Rock Island and various other railroads that have plans that are almost matured and they go back under this bill and they fail to reach an agreement such as you have done in the Missouri Pacific, or such as they did in the cotton belt.

Now, what happens to all the work that has been done over the past. 12, 14 years, or whatever it is, if they fail to agree?

Mr. WALTER. You would have accepted as fixed, all of the findings as to the priority, as to what each one of the various classes of creditors. is entitled to have. That will be binding on all the parties, which reduces the volume of matter to be decided by the Commission and the court, to a very small amount. I doubt that it will delay matters

greatly, or interfere with orderly procedure.

Senator HAWKES. Let us grant that you are right and that you think it will not delay reaching an agreement, a meeting of the minds. But suppose it does? That is the point I am asking. Suppose it does, and after the Commission struggles with this thing and the various security holders, including the common stockholders, they find that they cannot meet the requirements under this act. Then where does it leave those people on the work that has been done in the past 10 or 12 or 14 years?

Mr. WALTER. They will have to make new findings and new plans, reflecting the situation as it is presented to the Commission, after they have totally failed to agree.

I think I might call your attention to what Judge Evans said when the motion to dismiss the Rock Island appeal was up. He had been horrified to see what happened in the North Western and the Milwaukee cases, that they did not appreciate the situation. The attorney for one of the parties said "If we are going to send the Rock Island plan back to the Commission it may take 10 years." He said "It.