At that point, an order pursuant to the pertinent immunity provisions of the Organized Crime Control Act of 1970 would have to be obtained.

I would like to turn to section 7-314 to the bill to which we have. serious objections, but which I have left to the end because they present questions which primarily relate not to bankruptcy administration, including corporate reorganization, but rather to the Federal securities laws themselves.

Far-reaching exemptions from the securities law are proposed for securities issued during the course of reorganization proceedings.

The present law, in general, provides certain exemptions from the registration provisions of the Securities Act of 1933, for securities issued in the course of a bankruptcy proceeding or reorganization. These are based upon the concept that the scrutiny and approval of such issuances by the court provides an adequate substitute for the disclosure requirements of the Securities Act, and I do not propose to question that general proposition, which is well established in existing bankruptcy law.

However, the Bankruptcy Commission's bill would go much further. Section 7-314 states that "no provisions of any law requiring registration of securities or registration or licensing of issuers of securities shall apply" not only to the issuance of securities in the course of bankruptcy proceedings, but also to any "transaction in any security" issued pursuant to such proceedings, except for certain transactions by an issuer or controlling person of an issuer.

In contrast to the existing laws, which exempts only transactions, this would seem to create a perpetual exemption from the securities laws for securities which happened to have been originally issued in a transaction under the bankruptcy laws and to provide exemption not only from the requirements that securities be registered under that securities act, but also for the requirement that issuers of securities must register them under the Securities Exchange Act, thus involving a continuous scheme of disclosure and regulation of insider trading, proxy solicitation and other matters.

We see no justification whatsoever for allowing a publicly held company to enjoy a perpetual exemption from the continuing disclosure and investor protection scheme embodied in the Securities Exchange Act, simply because this company has once gone through bankruptcy or reorganization.

Indeed, I doubt if the Bankruptcy Commission really intended so startling a result, since they do not suggest such an intention in their report. Rather, it appears that they were endeavoring to preempt State securities regulations. But the language used in section 7-314 is susceptible to this sweeping interpretation and we think it absolutely essential that it be changed, to avoid that result.

In the detailed report we shall deal more thoroughly with the problems I have outlined todav, and some others.

I appreciate the opportunity to express the views of the SEC on this important legislation and thank you for your courtesy. Mr. EDWARDS. Thank you very much, Mr. Commissioner.

Do any of your colleagues desire to make a statement?

Mr. LOOMIS. No, sir.

Mr. EDWARDS. I yield then to the gentleman from Massachusetts.

Mr. DRINAN. Thank you, Mr. Chairman, and thank you, Commissioner Loomis and your associates for this very good testimony.

On the question that you outlined on the mandatory appointment of a trustee on pages 6 and 7, the last sentence of your testimony there on page 7 seems to indicate that you may not be far away at all from the other side.

You say that there should be a possible exception where no significant reorganization is contemplated, but that there should not be appointment of a trustee in all cases.

Would not that be more or less saying the same thing as what the people say who indicate that they do not want a mandatory appointment? Is it not entirely similar, but aren't you really almost conceding the point there?

Mr. LOOMIS. Well, I do not think so because it speaks of minor adjustments, but I think it is very rare for a major company to go into chapter X just to make minor little changes. I do think it hardly ever happens at present although sometimes they go into chapter XI for that purpose. And if it is the kind of case which properly belongs in chapter XI because the rights of public investors are not being affected in a publicly owned corporation, then a trustee is not needed.

Such cases are in essence what we are seeking to provide for-to preserve, in effect for chapter XI type cases, the procedure now followed there, but not to allow this to slip over into chapter X and eliminate the trustee simply because people feel that it is inconvenient.

Mr. DRINAN. Well, I guess you know that H.R. 31 says that the appointment shall be presumptive where in the debts exceed $1 million and where there are 300 or more securities holders.

Mr. LOOMIS. Yes.

Mr. DRINAN. I assume that they had evidence that in some cases the appointment of a trustee was really not necessary when the cost of such a trustee was disproportionate to what he could save in the case. So I don't quite see why you are insisting that it be mandatory. What is wrong with allowing some discretion in this area?

Mr. LOOMIS. Well, there is always a pressure to avoid the appointment of trustees because management wants to remain in control. They feel that the lesser protection works and the trustee is going to take time and cost money so the bank creditors will line up with management to try to avoid that.

We feel by reason of those pressures in these major cases, the appointment of a trustee should be more than presumptive.

It should be almost mandatory except where it appears that the company really does not need to be reorganized.

Mr. LEVY. I might add that we have not been able to find in the Bankruptcy Commission's Report facts to support the assertion that a trusteeship is expensive and disproportionate to the benefits involved.

What it amounts to is that a trustee, when appointed, becomes the chairman of the board and in effect the chief executive officer. If he isn't there, members of the management group will be paid to render that service. So, it is not a case of additional costs. It is the trustee's duty to manage the business. A trustee thus undertakes both management responsibility and the responsibility to reorganize. He does not get paid for services that others perform.

Mr. DRINAN. That is very helpful. I assume that they are operating on their own expenses?

Mr. LOOMIS. It is largely based on some kind of an analogy that they feel that the chapter XI type proceeding is more congenial to their point of view and the feeling that perhaps a trustee is too drastic a remedy to provide and that is true only in the case of a chapter XI.

When you put in a receiver or a trustee, he displaces not only the stockholder but he also displaces the owner of the business. But, in a large, publicly owned organization it is not unfair to displace an unsuccessful management by a trustee. It is really not too unusual or particularly shocking since they have no right to manage on the basis of the authority that they have gotten at the annual meeting. Mr. EDWARDS. Would you yield?

Is it the position of the SEC that there be an independent trustee in every case in which publicly held securities are to be affected?

Mr. LOOMIS. Well, our position as outlined is only applicable where there are assets of more than $1 million and more than 100 security holders. This is the difference between private and public. But, in all cases beyond those limits there should be a trustee appointed. This was one of the major reforms and the experience since 1938 has not indicated any basis for departing from that.

Mr. EDWARDS. And, at what point would that be done?
At what point would the decision be made?

Mr. LOOMIS. If a trustee is appointed, then he should be appointed promptly after the petition is approved because the early period is very critical. Decisions must be made and they should be made by someone who is appointed to be the trustee.

If there is a time delay this means that there is simply no central authority at the outset to make decisions in that interval and those could be very crucial days.

Mr. EDWARDS. Thank you. I yield back to Mr. Drinan.

Mr. DRINAN. Commissioner Loomis, I do not know how I come out at the moment on the role of SEC. Very knowledgeable people, like yourself, recommend against what the NBC has recommended. They testified the other day.

Would you do this? Would you state the argument on the other side? What is the best argument that the other side has?

Mr. LOOMIS. Well, I think probably the best argument that they have is that if you set up this Administrator, and he operates the whole bankruptcy system, why presumably he would be competent to take over this function, too, and presumably he would be interested in investor protection, too. So, it would perhaps be more economical and efficient to take the SEC out and let him do it if you are certain that he will do a fine job.

Mr. DRINAN. And how do you answer that?

Mr. LOOMIS. Well, we feel that the Administrator by his nature. would not be primarily concerned with investor protection. He is supposed to be an administrator. He would want to handle the work efficiently and quickly and economically and his main attention, it appears to us, will be devoted to improving the situation in the case of consumer bankruptcy which is a vast and major problem. Investor protection would be a sideline for him, somewhat different from his main responsibilities.

And, maybe, since we do believe-I do not like to sound too proud of our agency-on the other hand, not having been in this work, these

gentlemen or the staff have been in it mostly. I think that the Commission has performed a very useful function and these men have done some really superb jobs.

I do not see that it is justified to eliminate all of that simply on the grounds of what one might call our general needs.

Mr. BUTLER. If the gentleman would yield.

I am totally in sympathy with this point, and the panel obviously agrees with me. It seems to me there is a level of expertise to be developed in the area of corporate reorganizations that chapter X is involved with and you have developed it; if the corporation being reorganized is publicly held there is no doubt that you have built up a fine knowledge and expertise that would be very helpful to the bankruptcy court. It seems to me that it is important to preserve that expertise by retaining your role in corporate reorganizations.

But, testimony that has concerned me with earlier witnesses is the revelation that the SEC is not always immediate or prompt and perhaps there are delays involved in getting responses and getting involvement by the SEC. Is this a problem?

Since you did mention that one of the arguments is economy and efficiency, maybe this is tied to that issue.

Would you comment on that?

Mr. LOOMIS. Well, I do not think that is too much of a problem. Our staff is in the case. The people who are involved with it-they are working full time in it. And I do not see that they provide any unreasonable delay. There are some circumstances where a major question of law or policy arises where they feel that they have to come to the Commission and get some instruction but usually the Commission meets 3 or 4 days a week and it won't take too long for the Commission.

Mr. EDWARDS. If I may interrupt.

The additional expense of this is a frequent complaint.
Mr. LEVY. Let us focus on the question a little bit more.

In chapter X cases there are many things that come up in the course of the reorganization. We, as a party, take positions and submit our comments just like any other parties in a proceeding. There are no occasions for any discussion about delays. We are subjected to the timetable that the court imposes, subject only to an extension that any other party might ask for. The advisory report on a plan is the highlight of the proceeding, and the element of time sometimes poses special problems for the Commission because of the complexities that are involved in a plan of reorganization and the types of issues that must be resolved.

For these reasons we are obliged from time to time to ask the court to give us an extension of time, more than may ordinarily be allotted to the Commission at the outset. So if it was contemplated perhaps to give us 60 days we may want to have 90 days. That would be an average type of situation for filing our report. We have given the committee here a sample copy of advisory reports to show just exactly the magnitude of this tax.

I do not think it is anything unusual if the SEC needs such additional time. The advisory report of the Commission is an important document for the court which is to determine whether the plan is fair and equitable, whether the plan is feasible. Chapter X requires that this report or a summary thereof goes out to security holders, who are to vote on the plan.

So, therefore, the report must be cogent in its reasons and meticulous and clear in order to give the public investors the best opportunity to judge the instrinsic merits of the plan. It is not to be a document only understood by experts.

I don't think that by appointing a man, an administrator rather than the SEC, the staff that he appoints, if they are going to do the job, are not going to be subject to the same problems as we have been.

Moreover, "administrator" is not the right word for you to use to identify him. He would also make decisions which are judicial in

nature.

Take just one illustration. He will decide whether the debtor should be reorganized. Now, that is a major decision, should this company stay alive or be liquidated.

It is proposed that those who don't like his ruling will have 10 days in which to appeal to the bankruptcy judge. This involves more than housekeeping functions. He would do a lot of things which will affect substantive rights. If that is the case, then all you are doing is setting up another judge in between the trustee and the bankruptcy court. Finally, we do not have anything in the record adequately to determine what the cost of an administrator is likely to be because his responsibility covers not only SEC functions, which are small. The administrator will have supervision over all bankruptcies, thousands upon thousands of cases.

Mr. DRINAN. You are quite right on that. But, Commissioner Loomis, let me read from the Commission's report on this recommendation, and I think that I was in error before when I said that the NBC favors the separation or favors putting the SEC's functions into the administrator's hands. I do not think that is true. But, here is what the Commission said, they sum up what the SEC does. It then says that the Commission "does not intend any criticism of the work of the SEC over the years, but it would be undesirable for two agencies to perform" really similar functions.

Now, in your statement here, Commissioner Loomis, on page 14, you say that "so far as funding is concerned, the SEC has not been able in the past to devote as large resources to corporate reorganization work on the scale that it would have liked." And then you say that "the Congress could provide the necessary funding whether it goes to the SEC or to the Administrator."

Now, from what you are saying you suggest that there is a possible conflict in the nature of the duties of these two agencies, and the SEC should continue to run it and that they show that it should not be centralized.

Now, my question comes to this: How many people or what resources do you in fact commit to this work and how many of these resources presumably would have to be transferred to the administrator?

Mr. LOOMIS. These figures are summary figures found on page 4 of the report that we filed with the House, which show, in essence, that the resources have been slowly increasing over recent years.

In 1970, we had 25.8 man-years in this work, compensation expense of $453.000. In 1975, we had 35.1 man-years and an expenditure of $827,000.

Mr. DRINAN. Well, thank you, that is illuminating. The Commission appears to be almost alone in recommending this. I have heard this