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840

PUBLIC LAWS-CHS. 567, 575-JUNE 22, 1938

Provisos.
Extension of privileges to such officers
heretofore retired.
No increase in prior
retired pay.

General of the Navy, or as Major General Commandant of the Marine
Corps, and is retired after completion of such service while serving
in a lower rank or grade, may, in the discretion of the President, be
retired with the rank, pay, and allowances authorized by law for the
highest grade or rank held by him as such Chief of Naval Operations,
Chief of Bureau, Judge Advocate General, or Major General Commandant: Provided, That the President in his discretion may extend
the privileges herein authorized to such officers as have heretofore
been retired and who satisfy the foregoing conditions: Provided
further, That no increase provided herein in retired pay shall be
held to have accrued prior to the passage of this Act.
Approved, June 22, 1938.
[CHAPTER 575]

June 22, 1938
[H. R. 8046]
[Public, No. 696]

Bankruptcy Act
of 1898, amendments.
30 Stat. 544; 32 Stat.
800; 36 Stat. 842; 47
Stat. 1467; 48 Stat. 911.
11 U. S. C.

Chapter I-Definitions.

Meaning of words

whom petition
a

has

been filed."
"Adjudication."
"Appellate courts."

"Bankrupt."

chBaser

fde

"Clerk"

"Conceal."
ororaton.

pur-

[52 STAT.

AN ACT

To amend an Act entitled "An Act to establish a uniform system of bankruptcy
throughout the United States", approved July 1, 1898, and Acts amendatory
thereof and supplementary thereto; and to repeal section 76 thereof and all
Acts and parts of Acts inconsistent therewith.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That sections 1 to
11, inclusive; 14; 15; 17 to 29, inclusive; 31; 32; 34; 35; 37 to 42,
inclusive; 44 to 53, inclusive; and 55 to 72, inclusive, of an Act
entitled "An Act to establish a uniform system of bankruptcy
throughout the United States", approved July 1, 1898, as amended,
are hereby amended; and sections 12, 13, 73, 74, 77A, and 77B are
hereby amended and incorporated as chapters X, XI, XII, XIII,
and XIV; said amended sections to read as follows;
"CHAPTER I-DEFINITIONS
"SECION 1. MEANING OF WORDS AND PHRASES.-The words and
phrases used in this Act and in proceedings pursuant hereto shall,
unless the same be inconsistent with the context, be construed as
follows:
() 'A person against whom a petition has been filed' sllall include
a person who has filed a voluntary petition;
"(2) 'Adjudication' shall mean a decree that a person is a
bankrupt;
(3) 'Appellate courts' shall include the circuit courts of appeals
of the United States, the United States Court of Appeals of the
District of Columbia, and the Supreme Court of the United States;
"(4) 'Bankrupt' shall include a person against whom an involuntary petition or an application to revoke a discharge has been filed,
or who has filed a voluntary petition, or who has been adjudged a
bankrupt;
"(5) 'Bona-fide purchaser' shall include a bona-fide encumbrancer
or pledgee and the transferee, immediate or mediate, of any of them;
"(6) 'Clerk' shall mean the clerk of a court of bankruptcy;
"(7) 'Conceal' shall include secrete, falsify, and mutilate;
"(8) 'Corporation' shall include all bodies having any of the powers
and privileges of private corporations not possessed by individuals
or partnerships and shall include partnership associations organized
under laws making the capital subscribed alone responsible for the
debts of the association, joint-stock companies, unincorporated companies and associations, and any business conducted by a trustee or
trustees wherein beneficial interest or ownership is evidenced by
certificate or other written instrument;

52 STAT.]

841

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"(9) 'Court' shall mean the judge or the referee of the court of
bankruptcy in which the proceedings are pending;
"(10) 'Courts of bankruptcy' shall include the district courts of the

United States and of the Territories and possessions to which this
Act is or may hereafter be applicable, and the District Court of the
United States for the District of Columbia;
"(11) 'Creditor' shall include anyone who owns a debt, demand,
or claim provable in bankruptcy, and may include his duly authorized agent, attorney, or proxy;
"(12) 'Date of adjudication' shall mean the date of entry of the
decree of adjudication, or, if such decree is appealed from, then the t
date when such decree is finally confirmed or the appeal is dismissed;
"(13) 'Date of bankruptcy', 'time of bankruptcy', 'commencement

"Court."
Courts

of

bank-

"reditor.

"Date of adjudica-

"Date of bankt-

"commencewith reference to time, shall mean ruptcy,"
of proceedings', or„VZ'bankruptcy'
of proceedings,"
1,V~OU~
*ment
or "bankruptcy" with
the date when the petition was iled;
"(14) 'Debt' shall include any debt, demand, or claim provable in referece to time.
bankruptcy;
"(15) 'Discharge' shall mean the release of a bankrupt from all "Discharge."
of his debts which are provable in bankruptcy, except such as are
excepted by this Act;
"(16) 'Document' shall include any book, deed, record, paper, or "Document."
instrument in writing;
"Far-"
"(17) 'Farmer' shall mean an individual personally engaged in
farming or tillage of the soil, and shall include an individual personally engaged in dairy farming or in the production of poultry,
livestock, or poultry or livestock products in their unmanufactured
state, if the principal part of his income is derived from any one or
more of such operations;
"(18) 'Holiday' shall include New Year's Day, Washington's " o lid a yBirthday, Memorial Day, Independence Day, Labor Day, Armistice
Day, Christmas Day, and any day appointed as a holiday or as a day
of public fasting or thanksgiving by the President or the Congress
of the United States, or by the Governor or the Legislature of the
State in which the proceeding under this Act is filed or pending;
nsolvency.
"(19) A person shall be deemed insolvent within the provisions of
this Act whenever the aggregate of his property, exclusive of any
property which he may have conveyed, transferred, concealed,
removed, or permitted to be concealed or removed, with intent to
defraud, hinder, or delay his creditors, shall not at a fair valuation
be sufficient in amount to pay his debts;
"'"de.
"(20) 'Judge' shall mean a judge of a court of bankruptcy, not
including the referee;
"Oath."
"(21) 'Oath' shall include affirmation;
"Officer."
"(22) 'Officer' shall include clerk, marshal, receiver, custodian,
referee, and trustee, and the imposing of a duty upon, or the forbidding of an act by, any officer shall include his successor and any
person authorized by law to perform the duties of such officer;
"ersos."
'(23) 'Persons' shall include corporations, except where otherwise
specified, and officers, partnerships, and women, and when used with
reference to the commission of acts which are forbidden under this
Act shall include persons who are participants in the forbidden acts,
and the agents, officers, and members of the board of directors or
trustees or of other similar controlling bodies of corporations;
"Petition."
"(24) 'Petition' shall mean a document filed in a court of bankruptcy or with a clerk thereof by a debtor praying for the benefits
of this Act, or by creditors alleging the commission of an act of
bankruptcy by a debtor therein named;

842

PUBLIC LAWS-CH. 575-JUNE 22, 1938

"(25) 'To record' shall include to register or to file for record or
registration;
"(26) 'Referee' shall mean the referee who has jurisdiction of the
case or to whom the case has been referred or anyone acting in his
stead;
"(27) 'Relatives' shall mean persons related by affinity or consan-

"To record."

"Referee."

"Relatives."

"Sed

[52 STAT.

ceditor.

guinity within the third degree as determined by the common law
and shall include the spouse;
(28) 'Secured creditor' shall include a creditor who has security
for his debt upon the property of the bankrupt of a nature to be

assignable under this Act or who owns such a debt for which some
endorser, surety, or other person secondarily liable for the bankrupt
has such security upon the bankrupt's assets;
"(29) 'States' shall include the Territories and possessions to

"states.h"

which this Act is or may hereafter be applicable, Alaska, and the

District of Columbia;
"(30) 'Transfer' shall include the sale and every other and differ-

"Transfer."

ent mode, direct or indirect, of disposing of or of parting with
property or with an interest therein or with the possession thereof

aTrustee", "receiver'"
"wage earner."

or of fixing a lien upon property or upon an interest therein, absolutely or conditionally, voluntarily or involuntarily, by or without
judicial proceedings, as a conveyance, sale, assignment, payment,
pledge, mortgage, lien, encumbrance, gift, security, or otherwise;
"(31) 'Trustee' shall include all of the trustees and 'receiver' shall
include all of the receivers of an estate;
"(32)

'Wage earner' shall mean an individual who works for

wages, salary, or hire, at a rate of compensation not exceeding $1,500
per year;
"(33) Words importing the masculine gender may be applied to

Gender.
Plural number.

and include all persons;
"(34) Words importing the plural number may be applied to and

singular number.

mean only a single person or thing; and
"(35) Words importing the singular number may be applied to

and mean several persons or things.
Chapter II-Cou rts
of Bankruptcy.

"CHAPTER II-COURTS OF BANKRUPTCY

Creation of counrt
of bankruptcy ai
their jurisdiction.

Powers.
Adjudication
bankrupts.

"SEC. 2. CREATION OF Courrs OF BANKRUPTCY AND TuEIM JURISDICTION.-a. The courts of the United States hereinbefore defined as
courts of bankruptcy are hereby created courts of bankruptcy and are
hereby invested, within their respective territorial limits as now
established or as they may be hereafter changed, with such jurisdiction at law and in equity as will enable them to exercise original
jurisdiction in proceedings under this Act, in vacation, in chambers,
and during their respective terms, as they are now or may be hereafter held, toof
"(1) Adjudge persons bankrupt who have had their principal
place of business, resided or had their domicile within their respective territorial jurisdictions for the preceding six months, or for a
longer portion of the preceding six months than in any other jurisdiction, or who do not have their principal place of business, reside,
or have their domicile within the United States, but have property
within their jurisdictions, or who have been adjudged bankrupts
by courts of competent jurisdiction without the United States, and

have property within their jurisdictions;
Allowance, etc.,
Appointment of r
ceivers or marshals.

of

"(2) Allow claims, disallow claims, reconsider allowed or disallowed claims, and allow or disallow them against bankrupt estates;
"(3) Appoint, upon the application of parties in interest, receivers
or the marshals to take charge of the property of bankrupts and to

843

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

52 STAT.]

protect the interests of creditors after the filing of the petition and
until it is dismissed or the trustee is qualified; and to authorize such
receiver, upon his application, to prosecute or defend any pending
suit or proceeding by or against a bankrupt or to commence and
prosecute any suit or proceeding in behalf of the estate, before any
judicial, legislative, or administrative tribunal in any jurisdiction,
until the petition is dismissed or the trustee is qualified: Provided,
however, That the court shall be satisfied that such appointment or
authorization is necessary to preserve the estate or to prevent loss
thereto;

Proio.
C

"(4) Arraign, try, and punish persons for violations of this Act,

in accordance with the laws of procedure of the United States now
in force, or such as may be hereafter enacted, regulating trials for
the alleged violation of laws of the United States;
"(5) Authorize the business of bankrupts to be conducted for
limited periods by receivers, the marshals, or trustees, if necessary
in the best interests of the estates, and allow such officers additional

Conductof busin,)es
p.

of bankrupts.
Pot, p.

Bring in and substitute additional persons or parties in

proceedings under this Act when necessary for the complete deter-

on

Vioations.

compensation for such services, as provided in section 48 of this

Act;
"(6)

d ti

on i

pt

s61.

Addition, etc., of
8
in promedini gs.

mination of a matter in controversy;
"(7) Cause the estates of bankrupts to be collected, reduced to
money and distributed, and determine controversies in relation

eCoectio,

of

etc.,

L

thereto, except as herein otherwise provided, and determine and
liquidate all inchoate or vested interests of the bankrupt's spouse
in the property of any estate, whenever under the applicable laws
of the State, creditors are empowered to compel such spouse to
accept a money satisfaction for such interest;
"(8)

Close estates, by approving the final accounts and dischar-

ing the trustees, whenever it appears that the estates have been fully
administered or, if not fully administered, that the parties in interest
will not furnish the indemnity necessary for the expenses of the
proceeding or take the steps necessary for the administration of
the estate; and reopen estates for cause shown;
"(9) Confirm or reject arrangements or plans proposed under this
Act, set aside confirmations of arrangements or wage-earner plans
and reinstate the proceedings and cases;
"(10) Consider records, findings, and orders certified to the judges
by referees, and confirm, modify, or reverse such findings and orders,

losing of estates

Confirmation or
of plas, etc.

etio

Consderation, et(
rs
of referees.

or return such records with instructions for further proceedings;
"(11) Determine all claims of bankrupts to their exemptions;

"(12) Discharge or refuse to discharge bankrupts and set aside
discharges and reinstate the cases;
"(13) Enforce obedience by persons to all lawful orders, by fine
or imprisonment or fine and imprisonment;
"(14)

Extradite bankrupts from their respective districts to other

Determination

s for

i»t

en.
p-

Discharges.

derforoement

of oto-

Extradition.

districts;
"(15) Make such orders, issue such process, and enter such judg- dorders
ments, in addition to those specifically provided for, as may be

necessary for the enforcement of the provisions of this Act: Provided,
however, That an injunction to restrain aa court
court may
mstrain
be issued by
the judgeoludge

proe

CO.on

to r

"(16) Punish persons for contempts committed before referees;
tors or upon their own motion, remove for cause receivers or trustees
upon hearing after notice;

e0

ly

only.

"(17) Approve the appointment of trustees by creditors or appoint
trustees when creditors fail so to do; and, upon complaints of credi-

S.

Contempts befoi
Tfestees, approveal

of appontments,

et e.

844

PUBLIC LAWS-CH. 575-JUNE 22, 1968

Costs.

Transfer of cases.
Ancillary jurisdiction over persons or
property.
Provso.
Limitation.

Delivery and accounting requirements.

.PoviO.

Required only in
certain proceedings.
Port, pp. 883, 916.

Powers other than
those specifically enumerated.

Chapter III-Bankrupts.
Acts of bankruptcy.

[52 STAT.

"(18) Tax costs and render judgments therefor against the unsuccessful party, against the successful party for cause, in part against
each of the parties, and against estates, in proceedings under this Act;
"(19) Transfer cases to other courts of bankruptcy;
"(20) Exercise ancillary jurisdiction over persons or property
within their respective territorial limits in aid of a receiver or
trustee appointed in any bankruptcy proceedings pending in any
other court of bankruptcy: Provided, however, That the jurisdiction
of the ancillary court over a bankrupt's property which it takes into
its custody shall not extend beyond preserving such property and,
where necessary, conducting the business of the bankrupt, and reducing the property to money, paying therefrom such liens as the court
shall find valid and the expenses of ancillary administration, and
transmitting the property or its proceeds to the court of primary
jurisdiction; and
"(21) Require receivers or trustees appointed in proceedings not
under this Act, assignees for the benefit of creditors, and agents
authorized to take possession of or to liquidate a person's property
to deliver the property in their possession or under their control to
the receiver or trustee appointed under this Act or, where an arrangement or a plan under this Act has been confirmed and such property
has not prior thereto been delivered to a receiver or trustee appointed
under this Act, to deliver such property to the debtor or other person
entitled to such property according to the provisions of the arrangement or plan, and in all such cases to account to the court for the
disposition by them of the property of such bankrupt or debtor:
Provided, however, That such delivery and accounting shall not be
required, except in proceedings under chapters X and XII of this Act,
if the receiver or trustee was appointed, the assignment was made, or
the agent was authorized more than four months prior to the date of
bankruptcy. Upon such accounting, the court shall reexamine and
determine the propriety and reasonableness of all disbursements made
out of such property by such receiver, trustee, assignee, or agent,
either to himself or to others, for services and expenses under such
receivership, trusteeship, assignment, or agency, and shall, unless such
disbursements have been approved, upon notice to creditors and other
parties in interest, by a court of competent jurisdiction prior to the
proceeding under this Act, surcharge such receiver, trustee, assignee,
or agent the amount of any disbursement determined by the court to
have been improper or excessive.
"b. Nothing in this section contained shall be construed to deprive
a court of bankruptcy of any power it would possess were certain
specific powers not herein enumerated.
CHAPTER III-BANKRUPTS
"SE. 3. AcTs OF BANKRUPTCY.-a. Acts of bankruptcy by a person
shall consist of his having (1) conveyed, transferred, concealed,
removed, or permitted to be concealed or removed any part of his
property, with intent to hinder, delay, or defraud his creditors or any
of them; or (2) transferred, while insolvent, any portion of his
property to one or more of his creditors with intent to prefer such
creditors over his other creditors; or (3) suffered or permitted,
while insolvent, any creditor to obtain a lien upon any of his property through legal proceedings and not having vacated or discharged
such lien within thirty days from the date thereof or at least five
days before the date set for any sale or other disposition of such property; or (4) made a general assignment for the benefit of his
creditors; or (5) while insolvent or unable to pay his debts as they

52 STAT.]

845

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

mature, procured, permitted, or suffered voluntarily or involuntarily
the appointment of a receiver or trustee to take charge of his property; or (6) admitted in writing his inability to pay his debts and
his willingness to be adjudged a bankrupt.
"b. A petition may be filed against a person within four months
after the commission of an act of bankruptcy. Such time with
respect to the first, second, or fourth act of bankruptcy shall not
expire until four months after the date when the transfer or assignment became so far perfected that no bona-fide purchaser from the
debtor and no creditor could thereafter have acquired any rights in
the property so transferred or assigned superior to the rights of the
transferee or assignee therein. For the purposes of this section, it
is sufficient if intent under the first act of bankruptcy or if intent
or insolvency under the second act of bankruptcy exists either at
the time when the transfer was made or at the time when it became
perfected, as hereinabove provided.
"c. It shall be a complete defense to any proceedings under the
first act of bankruptcy to allege and prove that the party proceeded
against was not insolvent as defined in this Act at the time of the
filing of the petition against him. If solvency at such date is proved
by the alleged bankrupt, the proceedings shall be dismissed. In such
proceedings the burden of proving solvency shall be on the alleged
bankrupt.
"d. Whenever a person against whom a petition has been filed
alleging the commission of the second, third, or fifth act of bankruptcy takes issue with and denies the allegation of his insolvency
or his inability to pay his debts as they mature, he shall appear
in court on the hearing, and prior thereto if ordered by the court,
with his books, papers, and accounts, and submit to an examination
and give testimony as to all matters tending to establish solvency
or insolvency or ability or inability to pay his debts as they mature
and, in case of his failure so to do, the burden of proving solvency
or ability to pay his debts as they mature shall rest upon him.
"SEC. 4. WHO MAY BECOME BANKRUPTS.-a. Any person, except
a municipal, railroad, insurance, or banking corporation or a building and loan association, shall be entitled to the benefits of this Act
as a voluntary bankrupt.
"b. Any natural person, except a wage earner or farmer, and
any moneyed, business, or commercial corporation, except a building and loan association, a municipal, railroad, insurance, or banking
corporation, owing debts to the amount of $1,000 or over, may be
adjudged an involuntary bankrupt upon default or an impartial
trial and shall be subject to the provisions and entitled to the benefits
of this Act. The bankruptcy of a corporation shall not release
its officers, the members of its board of directors or trustees or of
other similar controlling bodies, or its stockholders or members,
as such, from any liability under the laws of a State or of the United
States. The status of an alleged bankrupt as a wage earner or
farmer shall be determined as of the time of the commission of
the act of bankruptcy.
"SEC. 5. PARTNERS.-a. A partnership, including a limited partnership containing one or more general partners, during the continuation of the partnership business or after its dissolution and
before the final settlement thereof, may be adjudged a bankrupt
either separately or jointly with one or more or al of its general
partners.
"b. A petition may be filed by one or more or all of the general
partners in the separate behalf of a partnership or jointly in behalf
of a partnership and of the general partner or partners filing the

Petition against person committing act of
bankruptcy.

Proof of solvency.

Denial of allegation
of insolvency; hearing.

Who may become
bankrupts.
Voluntary bankruptcy.
Involuntary bankruptcy.

Determination of
status as wage earner
or farmer.
Partners.

Petition, by whom
filed.

846

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Proviso.
Petition filied by
than all geneural partners.

[52 STAT.

les same: Provided, however, That where a petition is filed in behalf

appoint-

of a partnership by less than all of the general partners, the petition shall allege that the partnership is insolvent. A petition may
be filed separately against a partnership or jointly against a partnership and one or more or all of its general partners.
;C. The creditors of the bankrupt partnership shall appoint the
trustee, who shall be the trustee of the individual estate of a general

Proriso.
futeetor
partner being administered in the proceeding: Provided, however,
Separate tr
estateofagen eralrprt- That the creditors of a general partner adjudged a bankrupt may,
nor.

Jurisdictioi

Accounts.

Expenses.

pdpor

Partnershil

ty and indiv
tates, dispos ition
net proceeds.

of

Claim of
ship estates agaulern
dividual estal es, etc.

Partnershil
rupt where al gebnr
partners so a( Judged.

Debts not
by discharge
nership.

upon cause shown, be permitted to appoint their separate trustee
for his estate. In other respects, so far as possible, the partnership
estate shall be administered as herein provided for other estates.
"d. The court of bankruptcy which has jurisdiction of one of the
general partners may have jurisdiction of all the general partners
and of the administration of the partnership and individual
property.
"e. The trustee or trustees shall keep separate accounts of the
partnership property and of the property belonging to the individual
general partners.
"f. The expenses shall be paid from the partnership property and
the individual property in such proportions as the court shall
determine.

"g. The net proceeds of the partnership property shall be appro-

priated to the payment of the partnership debts and the net pro-

ceeds of the individual estate of each general partner to the payment
of his individual debts. Should any surplus remain of the property
of any general partner after paying his individual debts, such surplus shall be added to the partnership assets and be applied to the
payment of the partnership debts. Should any surplus of the partnership property remain after paying the partnership debts, such
surplus shall be distributed among the individual partners, general
or limited, or added to the estates of the general partners, as the
case may be, in the proportion of their respective interests in the
partnership and in the order of distribution provided by the laws
of the State applicable thereto.
."h. The court may permit the proof of the claim of the partnership estate against the individual estates, and vice versa, and may
marshal the assets of the partnership estate and individual estates
so as to prevent preferences and secure the equitable distribution of
the property of the several estates.
" i. Where all the general partners are adjudged bankrupt, the
partnership shall also be adjudged bankrupt. In the event of one

or more but not all of the general partners of a partnership being
adjudged bankrupt, the partnership property shall not be
administered in bankruptcy, unless by consent of the general partner
or partners not adjudged bankrupt; but such general partner or
partners not adjudged bankrupt shall settle the partnership business
as expeditiously as its nature will permit and account for the
interest of the general partner or partners adjudged bankrupt.
partl

Limited pa rtnerhipa.

"j. The discharge of a partnership shall not discharge the indi-

vidual general partners thereof from the partnership debts. A
general partner adjudged a bankrupt either in a joint or separate
proceeding may, pursuant to the provisions of this Act, obtain a
discharge from both his partnership and individual debts.
"k. If a limited partnership is adjudged bankrupt, any limited
partner who is individually liable under the laws of the United
States or of any State for any of the partnership debts shall be
deemed a general partner as to such debts and, if he is insolvent,

52 STAT.]

75T

847

CONG., 3D SESS.-CH. 575-JUNE 22 1938

shall be subject to the provisions and entitled to the benefits of this
Act, as in the case of a general partner.
"SEC. 6. EXEMPTIONS OF BANKRUPTrs.-Tllis Act shall not affect
the allowance to bankrupts of the exemptions which are prescribed
by the laws of the United States or by the State laws in force at
the time of the filing of the petition in the State wherein they have
had their domicile for the six months immediately preceding the
filing of the petition, or for a longer portion of such six months
than in any other State: Provided,however, That no such allowance
shall be made out of the property which a bankrupt transferred or
concealed and which is recovered or the transfer of which is avoided
under this Act for the benefit of the estate, except that, where the
voided transfer was made by way of security only and the property
recovered is in excess of the amount secured thereby, such allowance
may be made out of such excess.
"SEC. 7. DUTIES OF BANKRUPTS.-a. The bankrupt shall (1) attend
at the first meeting of his creditors, at the hearing upon objections,
if anv, to his application for a discharge and at such other times as
the court shall order; (2) comply with all lawful orders of the
court; (3) examine and report to his trustee concerning the correctness of all proofs of claim filed against his estate; (4) execute and
deliver such papers as shall be ordered by the court; (5) execute
and deliver to his trustee transfers of all his property in foreign
countries; (6) immediately inform his trustee of any attempt by his
creditors or other persons to evade the provisions of this Act coming
to his knowledge; (7) in case of any person having to his knowledge
proved a false claim against his estate, disclose that fact immediately
to his trustee; (8) prepare, make oath to, and file in court within five
days after adjudication, if an involuntary bankrupt, and with his
petition, if a voluntary bankrupt, a schedule of his property, showing
the amount and kind of property, the location thereof and its money
value, in detail; and a list of all his creditors, including all persons
asserting contingent, unliquidated, or disputed claims, showing their
residence, if known, or if unknown that fact to be stated, the amount
due to or claimed by each of them, the consideration thereof, the
security held by them, if any, and what claims, if any, are contingent,
unliquidated, or disputed; and a claim for such exemptions as he
may be entitled to; all in triplicate, one copy for the clerk, one for
the referee, and one for the trustee: Provided, That the court may
for cause shown grant further time for the filing of such schedules
if, with his petition in a voluntary proceeding or with his application
to have such time extended in an involuntary proceeding, the bankrupt files a list of all such creditors and their addresses; (9) file
in triplicate with the court at least five days prior to the first
meeting of his creditors a statement of his affairs in such form as
may be prescribed by the Supreme Court; (10) at the first meeting
of his creditors, at the hearing upon objections, if any, to his
discharge and at such other times as the court shall order, submit to
an examination concerning the conducting of his business, the cause
of his bankruptcy, his dealings with his creditors and other persons,
the amount, kind, and whereabouts of his property, and, in addition,
all matters which may affect the administration and settlement of his
estate or the granting of his discharge; but no testimony given by
him shall be offered in evidence against him in any criminal proceeding, except such testimony as may be given by him in the hearing
upon objections to his discharge: Provided, however, That when the
bankrupt is required to attend for examination, except at the first
meeting and at the hearing upon objections, if any, to his discharge,

Exemptions
bankrupts.

of

Proviso.
Disallowancee.

Dutiesof bankrupts.

'rovisso.
Time txtension for
filing schedoulns.

Expenses of attendance for examination.

848

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

he shall be paid actual and necessary traveling expenses for any
whrminati"ons,

Where bankrupt is

distance in excess of one hundred miles from his place of residence at
the date of bankruptcy: And provided further, That the court may

for cause shown, and upon such terms and conditions as the court
may impose, permit the bankrupt to be examined at such place as
the court may direct whether within or without the district in which
the proceedings are pending; and (11) when required by the court,
prepare, verify, and file with the court in duplicate a detailed inventory, showing the cost to him of his merchandise or of such other
property as may be designated, as of the date of his bankruptcy.
"b. Where the bankrupt is a corporation, its officers, the members
of its board of directors or trustees or of other similar controlling

beath orinsanity of

Rght8to

exemp-

tion, deceased

bank-

rotectino"SEC.
rupts; exemption
from
arrest.

extAreiiionn

and

banu

a corporation

t is

bodies, its stockholders or members, or such of them as may be designated by the court, shall perform the duties imposed upon the
bankrupt by this Act.
"SEC. 8. DEATH OR INSANITY OF BANKRUPTS.-The death or in-

sanity of a bankrupt shall not abate the proceedings, but the same
shall be conducted and concluded in the same manner, so far as possible, as though he had not died or become insane: Provided, That in
case of death, the bankrupt's right to exemption, if any, shall be
preserved, and if the exempt property has not already been set off
or awarded to him, it shall upon application be ordered set off and
awarded to the spouse or dependent children surviving at his death
to the exclusion of his personal representatives.
9. PROTECTION OF BANKRUPTS.-A bankrupt
shall be exempt
b
r
e
from arrest upon civil process except in the following cases:
(1)
When issued from a court of bankruptcy for contempt or disobedience of its lawful orders; (2) when issued from a State court having jurisdiction, and when served within such State, upon a debt
or claim from which his discharge in bankruptcy would not be a
release, and in such case he shall be exempt from such arrest when
in attendance upon a court of bankruptcy or engaged in the performance of a duty imposed by this Act.
"SEC. 10. APPREHENSION AND EXTRADITION OF BANKRUPrs.-a. The
court may, during the pendency of a proceeding in bankruptcy,
upon application of the receiver, trustee, or a creditor and upon satisfactory proof by affidavit that the examination of such bankrupt is
necessary for the proper administration of the estate and that there
is reasonable cause to believe that such bankrupt is about to leave the
district in which he resides or has his principal place of business to
avoid examination, or that he has evaded service of a subpena or of
an order to attend for examination, or that, having been served with
a subpena or order to attend for examination, he has willfully disobeyed the same, issue to the marshal a warrant directing him to
bring such bankrupt forthwith before the court for examination. If,
upon hearing the evidence of the parties, it shall appear to the court
that the allegations are true and that it is necessary, the court shall
fix bail conditioned for his appearance for examination, from time
to time not exceeding in all ten days, as required by the court, and
for his obedience to all lawful orders made in reference thereto.
"b. Whenever any warrant for the apprehension of a bankrupt
shall have been issued under this Act, and he shall have been found
within the jurisdiction of a court other than the one issuing the
warrant, he may be extradited in the same manner as persons under
ihere
ndictment are now extradited from one district to another.
c. Where the bankrupt is a corporation, 'bankrupt' for the pur-

poses of this section shall include its officers and the members of its
board of directors or trustees or of other similar controlling bodies.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575--JUNE 22, 1938

"SEC. 11. SIrrS BY AND AGAINST BANKRUPTS.-a. A suit which
is founded upon a claim from which a discharge would be a release,
and which is pending against a person at the time of the filing of a
petition by or against him, shall be stayed until an adjudication or
the dismissal of the petition; if such person is adjudged a bankrupt,
such action may be further stayed until the question of his discharge
is determined by the court after a hearing, or by the bankrupt's
filing a waiver of, or having lost, his right to a discharge, or, in the
case of a corporation, by its failure to file an application for a
discharge within the time prescribed under this Act: Provided, That
such stay shall be vacated by the court if, within six years prior to
the date of the filing of the petition in bankruptcy such person has
been adjudicated a bankrupt, or has been granted a discharge, or
has had a composition confirmed, or has had an arrangement by
way of composition confirmed, or has had a wage earner's plan by
way of composition confirmed.
"b. The court may order the receiver or trustee to enter his
appearance and defend any pending suit against the bankrupt.
"c. A receiver or trustee may, with the approval of the court, be
permitted to prosecute as receiver or trustee any suit commenced by
the bankrupt prior to the adjudication, with like force and effect
as though it had been commenced by him.
"d. Suits shall not be brought against a person who has acted as
a receiver or trustee of a bankrupt estate, upon any matter arising
in connection with the administration thereof, subsequent to two
years after the estate has been closed.
"e. A receiver or trustee may, within two years subsequent to the
date of adjudication or within such further period of time as the
Federal or State law may permit, institute proceedings in behalf
of the estate upon any claim against which the period of limitation
fixed by Federal or State law had not expired at the time of the filing
of the petition in bankruptcy. Where, by any agreement, a period
of limitation is fixed for instituting a suit or proceeding upon any
claim, or for presenting or filing any claim, proof of claim, proof of
loss, demand, notice, or the like, or where in any proceeding, judicial
or otherwise, a period of limitation is fixed, either in such proceeding or by applicable Federal or State law, for taking any action,
filing any claim or pleading, or doing any act, and where in any
such case such period had not expired at the date of the filing of the
petition in bankruptcy, the receiver or trustee of the bankrupt may,
for the benefit of the estate, take any such action or do any such act,
required of or permitted to the bankrupt, within a period of sixty
(lays subsequent to the date of adjudication or within such further
period as may be permitted by the agreement, or in the proceeding or
by applicable Federal or State law, as the case may be.
"f. The operation of any statute of limitations of the United
States or of any State, affecting the debts of a bankrupt provable
under this Act, shall be suspended during the period from the date
of the filing of the petition in bankruptcy (1) until the expiration
of thirty days after the date of the entry of an order denying his
discharge; or (2) if he has waived or lost his right to a discharge,
then until the expiration of thirty days after the filing of such
waiver or loss of such right or, in the case of a corporation, if no
application for a discharge is filed within the period of six months
after the adjudication, then until the expiration of thirty days after
the end of such period; or (3) until thirty days after the dismissal
of the bankruptcy proceedings, whichever may first occur.
36525°-38--54

849
Suits by or against
bankrupts.
Pending suits.

Proviso.
If person has been
adjudicated a bankrupt, etc., within 6
years.

Defense by receiver
or trustee.
Prosecution of suits
commenced prior to
adjudication.

Time provisions.

Institution of pro.
ceedings upon claims
in behalf of estate;
time limitation.

Suspension of operation of statute of limitations.

PUBLIC LAWS-CH. 575-JUNE 22, 1938
Discharges,
granted.

when

Proriso.
Waiver of right to
discharge.
Applications by corporations.
Examination of
bankrupt.
Time allowed
filing objections.

for

Post, p. S67.

Grounds for refusal.

Proviso.
Burden of proof
that acts not committed.

Intervention by
U. 8. attorney.

[52 STAT.

"SEC. 14. DISCHARGES, WHEN GRANTED.-a. The adjudication of
any person, except a corporation, shall operate as an application for
a discharge: Provided, That the bankrupt may, before the hearing
on such application, waive by writing, filed with the court, his right
to a discharge. A corporation may, within six months after its
adjudication, file an application for a discharge in the court in
which the proceedings are pending.
"b. After the bankrupt shall have been examined, either at the
first meeting of creditors or at a meeting specially fixed for that
purpose, concerning his acts, conduct, and property, the court shall
make an order fixing a time for the filing of objections to the bankrupt's discharge, notice of which order shall be given to all parties
in interest as provided in section 58 of this Act. Upon the expiration
of the time fixed in such order or of any extension of such time
granted by the court, the court shall discharge the bankrupt if no
objection has been filed; otherwise, the court shall hear such proofs
and pleas as may be made in opposition to the discharge, by the
trustee, creditors, the United States attorney, or such other attorney as
the Attorney General may designate, at such time as will give the
bankrupt and the objecting parties a reasonable opportunity to be
fully heard.
"c. The court shall grant the discharge unless satisfied that the
bankrupt has (1) committed an offense punishable by imprisonment
as provided under this Act; or (2) destroyed, mutilated, falsified,
concealed, or failed to keep or preserve books of account or records,
from which his financial condition and business transactions might
be ascertained, unless the court deems such acts or failure to have
been justified under all the circumstances of the case; or (3) obtained
money or property on credit, or obtained an extension or renewal of
credit, by making or publishing or causing to be made or published
in any manner whatsoever, a materially false statement in writing
respecting his financial condition; or (4) at any time subsequent to
the first day of the twelve months immediately preceding the filing
of the petition in bankruptcy, transferred, removed, destroyed, or
concealed, or permitted to be removed, destroyed, or concealed, any
of his property, with intent to hinder, delay, or defraud his creditors;
or (5) has within six years prior to bankruptcy been granted a
discharge, or had a composition or an arrangement by way of
composition or a wage earner's plan by way of composition confirmed
under this Act; or (6) in the course of a proceeding under this
Act refused to obey any lawful order of, or to answer any material
question approved by, the court; or (7) has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his
liabilities: Provided, That if, upon the hearing of an objection to a
discharge, the objector shall show to the satisfaction of the court
that there are reasonable grounds for believing that the bankrupt
has committed any of the acts which, under this subdivision c, would
prevent his discharge in bankruptcy, then the burden of proving
that he has not committed any of such acts shall be upon the
bankrupt.
"d. When requested by the court, the United States attorney,
located in the judicial district in which the bankruptcy proceeding
is pending, or such other attorney as the Attorney General may designate, shall examine into the acts and conduct of the bankrupt and,
if satisfied that probable grounds exist for the denial of the discharge
and that the public interest so warrants, he shall oppose the discharge
of such bankrupt in like manner as provided in the case of a trustee.

52 STAT.]

75TH

CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"e. If the bankrupt fails to appear at the hearing upon his application for a discharge, or having appeared refuses to submit himself
to examination, or if the court finds after hearing upon notice that
the bankrupt has failed without sufficient excuse to appear and
submit himself to examination at the first meeting of creditors or
at any meeting specially called for his examination, he shall be
deemed to have waived his right to a discharge, and the court
shall enter an order to that effect.
"SEC.
15. DISCHIARGES, WHIEN REVOKED.-The court may, upon
the application of parties in interest who have not been guilty of
undue laches, filed at any time within one year after a discharge
shall have been granted, revoke it if it shall be made to appear that
it was obtained through the fraud of the bankrupt, that the
knowledge of the fraud has come to the petitioners since the granting
of the discharge and that the actual facts did not warrant the
discharge.
"SEC. 17. DEBTS NOT AFFECTED BY A DISCHARGE.-a. A discharge

in bankruptcy shall release a bankrupt from all of his provable debts,
whether allowable in full or in part, except such as (1) are due as a
tax levied by the United States, or any State, county, district, or
municipality; (2) are liabilities for obtaining money or property by
false pretenses or false representations, or for willful and malicious
injuries to the person or property of another, or for alimony due or
to become due, or for maintenance or support of wife or child, or
for seduction of an unmarried female, or for breach of promise of
marriage accompanied by seduction, or for criminal conversation;
(3) have not been duly scheduled in time for proof and allowance,
with the name of the creditor, if known to the bankrupt, unless
such creditor had notice or actual knowledge of the proceedings in
bankruptcy; or (4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any
fiduciary capacity; or (5) are for wages which have been earned
within three months before the date of commencement of the proceedings in bankruptcy due to workmen, servants, clerks, or traveling or city salesmen, on salary or commission basis, whole or part
time, whether or not selling exclusively for the bankrupt; or (6)
are due for moneys of an employee received or retained by his
employer to secure the faithful performance by such employee of the
terms of a contract of employment.
"CHAPTER IV-COURTS AND PROCEDURE THEREIN

851
Waiver of right to
discharge by failing to
appear and submit to
examination.

Discharges,
revoked.

Debts not affected
by a discharge.

Chapter IV- Courts
and Procedure Therein.

"SEC. 18. PROCESS; PLEADINGS; AND ADJTDICATIONS.-a. Upon the

filing of a petition for involuntary bankruptcy, service thereof,
with a writ of subpena, shall be made upon the person therein named
as defendant. Upon the filing of a voluntary petition in behalf of
a partnership by less than all of the general partners, service thereof,
with a writ of subpena, shall be made upon the general partner or
partners not parties to the filing of such petition. Such service
shall be returnable within ten days, unless the court shall, for
cause shown, fix a longer time, and shall be made at least five days
prior to the return day, and in other respects shall be made in the
same manner that service of such process is had upon the commencement of a suit in equity in the courts of the United States; but in
case personal service cannot be made within the time allowed, then
notice shall be given by publication in the same manner as provided by law for notice by publication in suits to enforce a legal
or equitable lien in courts of the United States, except that, unless

when

Process; pleadings;
and adjudications.

852

PUBLIC LAWS-CH. 575-JUNE 22, 1938

the court shall otherwise direct, the order shall be published only
once and the return day shall be five days after such publication.
"b. The bankrupt and, in the case of a petition against a partnership, any general partner or, in the case of a petition in behalf of a
partnership, any general partner not joining therein, may appear
and plead to the petition within five days after the return day or
within such further time as the court may allow.

Pleadings.

"c. All pleadings setting up matters of fact shall be verified under

Verification.
Determination

of

issues.

Failure to plead,
adjudication or dismissal.
Absence

of judge;

Voluntary petition.

Jury trials.

Waiver provision.

If

jury.not in at-

Existing lavs as to
jury trials.

Oaths.

By

whom

[52 STAT.

adminis

Affirmations.

Appdence of win e s s

es

oath.
"d. If a party entitled to appear and plead shall appear, within
the time limited, and controvert the facts alleged in the petition, the
court shall determine, as soon as may be, the issues presented by
the pleadings, without the intervention of a jury except in cases
where a jury trial is given by this Act, and make the adjudication
or dismiss the petition.
"e. If on the last day within which pleadings may be filed none
is filed, the court shall on the next day, or as soon thereafter as
practicable, make the adjudication or dismiss the petition.
"f. If the judge is absent from the district, or the division of the
district in which the petition is pending, on the next day after the
last day on which pleadings may be filed, and none has been filed,
the clerk shall, if the case has not already been referred, forthwith
refer it to the referee.
"g. Upon the filing of a voluntary petition, other than a petition
filed in behalf of a partnership by less than all of the partners, the
judge shall hear the petition and make the adjudication or dismiss
the petition. If the judge is absent from the district, or the division
of the district in which the petition is filed, at the time of the filing,
the clerk shall forthwith refer the case to the referee.
"SEC. 19. JuTR TRIALS.-a. A person against whom an involuntary
petition has been filed shall be entitled to have a trial by jury in
respect to the question of his insolvency, except as herein otherwise
provided, and of any act of bankruptcy alleged in such petition to
have been committed, upon filing a written application therefor at
or before the time within which an answer may be filed. If such
application is not filed within such time, a trial by jury shall be
deemed to have been waived.
"b. If a jury is not in attendance upon the court, one may be
specially summoned for the trial or the case may be postponed.
"c. The right to submit to a jury matters in controversy or an
alleged offense under this Act shall be determined and enjoyed
except as provided by this Act, according to the laws of the United
States now in force or such as may be hereafter enacted in relation
to trials by jury.
"SEC. 20. OATHS; AFrIRMATIONs.-a. Oaths required by this Act,
except upon hearing before a judge, may be administered by (1)

referees; (2) officers authorized to administer oaths in proceedings
before the courts of the United States, or under the laws of the
State where the same are to be taken; and (3) diplomatic or consular
officers of the United States in any foreign country.
"b. Any person conscientiously opposed to taking an oath may, in
lieu thereof, affirm. Any person who shall affirm falsely shall be
punished as for the making of a false oath.
"SEC. 21. EVDENCE.-a. The court may, upon application of any
officer, bankrupt, or creditor, by order require any designated per-

sons, including the bankrupt and his or her spouse, to appear before
the court or before the judge of any State court, to be examined
concerning the acts, conduct, or property of a bankrupt: Pro-

52 STAT.]

853

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

vided, That the spouse may be examined only touching business
transacted by such spouse or to which such spouse is a party and
to determine the fact whether such spouse has transacted or been
a party to any business of the bankrupt: And provided further,
That the spouse may be so examined, any law of the United States
or of any State to the contrary notwithstanding.
"b. Except as herein otherwise provided, the right to take depositions in proceedings under this Act shall be determined and enjoyed
according to the Taws of the United States now in force, or such
as may be hereafter enacted, relating to the taking of depositions.
"c. Notice of the taking of depositions shall be filed with the court
and a copy of such notice shall be served upon the adverse party
in every case.
"d. Certified copies of proceedings before a referee, or of papers,
when issued by the clerk or referee, shall be admitted as evidence with
like force and effect as certified copies of the records of district courts
of the United States are now or may hereafter be admitted as
evidence.
"e. A certified copy of the order approving the bond of a trustee
shall constitute conclusive evidence of his appointment and qualification.
"f. A certified copy of any order or decree entered in a proceeding
under this Act shall be evidence of the jurisdiction of the court, the
regularity of the proceedings, the fact that the order or decree
was made, and the contents thereof, and, if recorded, shall impart
the same notice that a deed or other instrument affecting property,
if recorded, would impart.
"g. A certified copy of the petition with the schedules omitted, of
the decree of adjudication or of the order approving the trustee's bond
may be recorded at any time in the office where conveyances of real
property are recorded, in every county where the bankrupt owns or
has an interest in real property. Such certified copy may be recorded
by the bankrupt, trustee, receiver, custodian, referee, or any creditor,
and the cost of such recording shall be paid out of the estate of
the bankrupt as part of the expenses of administration. Unless a
certified copy of the petition, decree, or order has been recorded in
such office, in any county wherein the bankrupt owns or has an interest
in real property in any State whose laws authorize such recording,
the commencement of a proceeding under this Act shall not be constructive notice to or affect the title of any subsequent bona-fide
purchaser or lienor of real property in such county for a present fair
equivalent value and without actual notice of the pendency of such
proceeding: Provided, however, That where such purchaser or lienor
has given less than such value, he shall nevertheless have a lien upon
such property, but only to the extent of the consideration actually
given by him. The exercise by any court of the United States
or of any State of jurisdiction to authorize or effect a judicial sale
of real property of the bankrupt within any county in any State
whose laws authorize the recording aforesaid shall not be impaired
by the pendency of such preeeding unless such copy be recorded in
such county, as aforesaid, prior to the consummation of such judicial
sale: Provided, however, That this subdivision shall not apply to the
county in which is kept the record of the original proceedings under
this Act.
"h. A certified copy of an arrangement or wage-earner plan and
of the order confirming it shall constitute evidence of the revesting
in the debtor of title to the property dealt with by the arrangement
or wage-earner plan, or of the vesting of title to such property in

Provisos.
Examination of
spouse limited to busi.
ness transactions.
Permitted, laws to
contrary notwithstanding.
Depositions.

Notice of taking;

service.

Certified copies of
proceedings before
referee, etc.; admissibility.

Certified copy of
order approving bond
of trustee.
Effect of, in proceeding hereunder.

Recording of copy
of petition, etc.,
where bankrupt owns
real property.

Failure to record,
effect on bona-fide
purchaser for value,
etc.

Provisos.
Where purchaser,
etc., has given less
than fair equivalent
value.

County in which
record of original proceedings kept.
Certified copy of
arrangement, etc..
as evidence of title to
property.

854

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Privileged communications.

Examination of witnesses with interest
adverse to party calling.

Remedies pertaining to discovery, etc.

Provio.
Expediting hearings.
Accounting; failure
to disclose cost.

Reference
tions.

of peti-

Transfer of case
from one referee to
another.
Jurisdiction of United States and State
courts.

Suits by
and trustee.

receiver

Pi,
pp. 809, 875,
879.
Jurisdiction of appellate courts.

[52 STAT.

such other person as may be provided by the arrangement or wageearner plan, and if recorded shall impart the same notice that an
instrument of transfer from the trustee to the debtor or to such
person if recorded would impart.
"i. A communication by a creditor, by the receiver or the trustee
of a bankrupt, by the attorney for any of them, or by the referee
to a creditor, to the receiver or trustee of the bankrupt, to the
attorney for any of them, to the referee or to the bankrupt or his
attorney, uttered in good faith and with reasonable grounds for
belief in its truth, concerning the conduct, acts, or property of the
bankrupt, shall be privileged and the creditor, receiver, trustee,
attorney, or referee so uttering the same shall not be held liable
therefor.
"j. In any proceeding or controversy, or in any plenary suit,
brought under this Act, if it shall appear that the interest of a
witness is adverse to the party calling him, such witness may be
examined as if under cross-examination and the party calling him
shall not be bound by such testimony.
"k. In all proceedings under this Act, the parties in interest
shall be entitled to all rights and remedies granted by the rules of
equity practice established from time to time by the Supreme Court
pertaining to discovery, interrogatories, inspection and production
of documents, and to the admission of execution and genuineness
of instruments: Provided, That the limitations of time therein
prescribed may be shortened by the court to expedite hearings.
"1. In any proceeding under this Act against a bankrupt for an
accounting by him for his property or the disposition thereof, or
to compel a turn-over of property by him, if his books, records,
and accounts shall fail to disclose the cost to him of such property
sold by him during any period under consideration, it shall be
presumed, until the contrary shall appear, that such property was
sold at a price not less than the cost thereof to him.
"SEC. 22. REFERENCE OF PETITIONs.-a. The judge may at any
stage of a proceeding under this Act refer the same to a referee,
either generally or specially.
"b. The judge may, at any time, for the convenience of parties
or for cause, transfer a case from one referee to another.
"SEC. 23. JURISDICTION OF UNITED STATES AND STATE COURTS.-a.
The United States district courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings
under this Act, between receivers and trustees as such and adverse
claimants, concerning the property acquired or claimed by the
receivers or trustees, in the same manner and to the same extent as
though such proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants
"b. Suits by the receiver and the trustee shall be brought or
prosecuted only in the courts where the bankrupt might have brought
or prosecuted them if proceedings under this Act had not been
instituted, unless by consent of the defendant, except as provided
in sections 60, 67, and 70 of this Act.
"SEC. 24. JURISDICTION OF APPELLATE COURTs.-a. The Circuit
Courts of Appeals of the United States and the United States Court
of Appeals for the District of Columbia, in vacation, in chambers,
and during their respective terms, as now or as they may be hereafter
held, are hereby invested with appellate jurisdiction from the several
courts of bankruptcy in their respective jurisdictions in proceedings
in bankruptcy, either interlocutory or final, and in controversies
arising in proceedings in bankruptcy, to review, affirm, revise, or

.,2 STAT. I

855

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

reverse, both in matters of law and in matters of fact: Provided,
however, That the jurisdiction upon appeal from a judgment on a
verdict rendered by a jury, shall extend to matters of law only:
Provided further, That when any order, decree, or judgment involves
less than $500, an appeal therefrom may be taken only upon allowance
of the appellate court.
"b. Such appellate jurisdiction shall be exercised by appeal and
in the form and manner of an appeal.
"c. The Supreme Court of the United States is hereby vested with
jurisdiction to review judgments, decrees, and orders of the Circuit
Courts of Appeals of the United States and the United States
Circuit Court of Appeals for the District of Columbia in proceedings
under this Act in accordance with the provisions of the laws of the
United States now in force or such as may hereafter be enacted.
"SEC. 25. PRACTICE ON APPEALS.-a. Appeals under this Act to the

Circuit Courts of Appeals of the United States and the United States
Circuit Court of Appeals for the District of Columbia shall be taken
within thirty days after written notice to the aggrieved party of the
entry of the judgment, order or decree complained of, proof of which
notice shall be filed within five days after service or, if such notice be
not served and filed, then within forty days from such entry.
"b. Receivers and trustees shall not be required in any case to give
bond when they take appeals.
"SEC. 26. ARBITRATION or CONTROVERSIES.-a. The receiver or trustee
may, pursuant to the direction of the court, submit to arbitration any
controversy arising in the settlement of the estate.
"b. Three arbitrators shall be chosen by mutual consent, or one by
the receiver or trustee, one by the other party to the controversy, and
the third by the two so chosen or, if they fail to agree in five days after
their appointment, the court shall appoint the third arbitrator.
"c. The written finding of the arbitrators or of a majority of them
as to the issues presented may be filed in court and shall have like
force and effect as the verdict of a jury.
"SEC. 27. COMPROMISES.-The receiver or trustee may, with the
approval of the court, compromise any controversy arising in the
administration of the estate upon such terms as he may deem for the
best interest of the estate.
"SEC. 28. DESIGNATION OF NFwSPAPERS.-The judges of courts of
bankruptcy shall by order designate a newspaper published within
their respective territorial districts, and in the county in which the
bankrupt resides or the major part of his property is situated, in
which notices and orders which the court may direct to be published
shall be inserted. Any court may in a particular case, for the
convenience of parties in interest, designate some additional newspaper in which notices and orders in such case shall be published.
"SEC. 29. OFFENSES.-a. A person shall be punished by imprisonment
for a period of not to exceed five years or by a fine of not more than
$5,000, or both, upon conviction of the offense of having knowingly
and( fraudulently appropriated to his own use, embezzled, spent,
or unlawfully transferred any property or secreted or destroyed any
document belonging to the estate of a bankrupt which came into his
charge as trustee, receiver, custodian, marshal, or other officer of the
court.
"b. A person shall be punished by imprisonment for a period of
not to exceed five years or by a fine of not more than $5,000, or both,
upon conviction of the offense of having knowingly and fraudulently
(1) concealed from the receiver, custodian, trustee, marshal, or other
officer of the court charged with the control or custody of property,

Provisos.
Appeal on jury verdict extended to matters of law only.
Where sum is less
than $500.
Exercise of jurisdiction by appeal.
Review by Supreme
Court, etc.

Practice on appeals.

No bond required of
receiver, etc.
Arbitration of controversies.

Arbitrators, appointment.

Finding, force of.

Compromises.

Designationofnewspapers.

OfBnses; penalties.

856

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

or from creditors in any proceeding under this Act, any property
belonging to the estate of a bankrupt; or (2) made a false oath or
account in or in relation to any proceeding under this Act; or (3)
presented under oath any false claim for proof against the estate
of a bankrupt, or used any such claim in any proceeding under this
Act, personally, or by agent, proxy, or attorney, or as agent, proxy,
or attorney; or (4) received any material amount of property from
a bankrupt after the filing of a proceeding under this Act, with
intent to defeat this Act; or (5) received or attempted to obtain any
money or property, remuneration, compensation, reward, advantage,
or promise thereof from any person, for acting or forebearing 1 to
act in any proceeding under this Act; or (6) while an agent or
officer of any person or corporation, and in contemplation of a proceeding under this Act by or against such person or corporation, or
with intent to defeat this Act, concealed or, with or without concealment, transferred any of the property of such person or corporation;
or (7) after the filing of a proceeding under this Act or in contemplation thereof, concealed, destroyed, mutilated, falsified, or made
a false entry in any document affecting or relating to the property
or affairs of a bankrupt; or (8) after the filing of a proceeding
under this Act, withheld from the receiver, custodian, trustee, marshal, or other officer of the court any document affecting or relating
to the property or affairs of a bankrupt, to the possession of which
he is entitled.
"c. A person shall be punished by fine, not to exceed $500, and
shall forfeit his office, and the same shall thereupon become vacant,
upon conviction of the offense of having knowingly (1) acted as a
referee in a case in which he is directly or indirectly interested; or
(2) purchased, while a referee, receiver, custodian, trustee, marshal
or other officer of the court, directly or indirectly, any propert of
the estate in a proceeding under this Act, of which he is such oficer;
or (3) refused, while such officer, to permit a reasonable opportunity
for
inscin
inspectio theof the accounts reing to the affairs of, and of
the documents f,of, ste
estates in his charge by parties in interest when
directed by the court so to do.
Time limitation.
"d. A person shall not be prosecuted for any offense arising under
this Act unless the indictment is found or the information is filed in
court within three years after the commission of the offense: ProPriso.
as oided, That the offense of concealment of assets of a bankrupt shall
sncealment
oasbe deemed to be a continuing offense until the bankrupt shall have
been finally discharged, and the period of limitations herein provided shall not begin to run until such final discharge.
Reportovitin
e (1) Whenever any ree, receiver, or trustee sh hallve reaetc.
sonable grounds for believing that any offense under this Act has
been committed, or that an investigation should be had in connection
therewith, it shall be the duty of any such officer to report such
matter to the United States attorney for the district in which it is
believed such an offense has ben committed, including in such
report a statement of all the facts and circumstances of the case
within his knowledge, the names of the witnesses and a statement
as to the offense or offenses believed to have been committed: ProProviso.
f
vided, That where one of such officers has made such a report, the
has made report.
other officers named herein shall not be required to do so.
Duties T'.
of
s. at"(2) It shall thereupon become the duty of the United States
torney.
attorney to inquire into the facts so reported to him and report
thereon to the referee, and if it appears probable that any offense
under this Act has been committed, in a proper case and without
delay, to present the matter to the grand jury, unless upon inquiry
and examination such United States attorney decides that the ends
' So in original.

52 STAT.]

857

75TH CONG., 3D SESS.-CH. 575--JUNE 22, 1938

of public justice do not require that the alleged offense should be
investigated or prosecuted, in which case he shall report the facts to
the Attorney General for his direction in the premises.
"f. The term 'bankrupt', wherever used in this section, shall
include a debtor by or against whom a petition has been filed proposing an arrangement or plan under this Act.
"SEC. 31. COMPUTATION

OF

TIME.-Whenever time is enumerated

by days in this Act, or in any proceeding thereunder the number of
days shall be computed by excluding the first and including the last,
unless the last fall on a Sunday or holiday, in which event the day
last included shall be the next day thereafter which is not a Sunday
or a holiday.
"SEC. 32. TRANSFER Or CASES.-In the event petitions are filed by
or against the same person or by or against different members of a
partnership, in different courts of bankruptcy each of which has
jurisdiction, the cases shall, by order of the court first acquiring
jurisdiction, be transferred to and consolidated in the court which
can proceed with the same for the greatest convenience of parties in
interest.
"CHAPTER V-OFFICERS, THEIR DUTIES AND

COMPENSATION
"SEC. 34. APPOINTMENT, REMOVAL, AND DISTRICTS OF REFEREES.-

The judges of courts of bankruptcy shall, within the territorial
limits of which they respectively have jurisdiction, (1) appoint
referees, each for a term of two years and may, in their discretion,
remove them because their services are not needed or for other cause;
and (2) designate and from time to time change the limits of the
districts of referees: Provided, That the jurisdiction of such referees
in matters referred to them shall not be restricted to the districts so
designated for them, but shall, unless otherwise provided in this Act,
be coextensive with the territorial limits of the jurisdiction of the
courts of bankruptcy appointing them.
"SEC. 35. QUALIFICATIONS OF REFEREFS.-Individuals shall not be

eligible to appointment as referees unless they are (1) competent to
perform the duties of a referee in bankruptcy; (2) not holding any
office of profit or emolument under the laws of the United States
or of any State other than commissioners of deeds, justices of the
peace, masters in chancery or notaries public; (3) not relatives of
any of the judges of the courts of bankruptcy or of the justices
or judges of the appellate courts of the districts wherein they may
be appointed; (4) resident within the territorial limits of the court
of bankruptcy and have their offices in the districts for which they
are to be appointed; and (5) members in good standing at the bar
of the district court of the United States in which they are
appointed: Provided, however, That this requirement shall not
apply to referees holding office on the date when this amendatory
Act takes effect.
"SEC. 37. NUMBER OF REFEREES.-Such number of referees shall
be appointed as may be necessary to assist in expeditiously transacting the bankruptcy business pending in the various courts of
bankruptcy, but, insofar as possible, the number shall be limited
with a view to employment of referees on a full-time basis.
"SEC. 38. JURISDICTION or REFEREES.-Referees are hereby invested,
subject always to a review by the judge, with jurisdiction to
(1) consider all petitions referred to them and make the adjudications or dismiss the petitions; (2) exercise the powers vested
in courts of bankruptcy for the administering of oaths to and the

"Bankrupt"
strued.

con-

Computation
time.

of

Transfer of cases.

Chapter V-Officers, Their Duties and
Compensation.
Referees;
appointment, removal, and
districts.

Proviso.
Jurisdiction.

Qualifications.

Proviso.
Application to present referees.
Number.

Jurisdiction.

858

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

examination of persons as witnesses and for requiring the production of documents in proceedings before them, except the power
of commitment; (3) exercise the powers of the judge for the taking
possession and releasing of the property of the bankrupt in the
event of the issuance by the clerk of a certificate showing the absence
of a judge from the judicial district, or the division of the district, or showing his sickness or inability to act; (4) grant, deny,
or revoke discharges; (5) confirm or refuse to confirm arrangements or wage-earner plans, or set aside the confirmation of arrangements or wage-earner plans and reinstate the proceedings or cases;
(6) perform such of the duties as are by this Act conferred on
courts of bankruptcy, including those incidental to ancillary jurisdiction, and as shall be prescribed by rules or orders of the courts
of bankruptcy of their respective districts, except as herein otherwise provided; and (7) during the examination of the bankrupt, or
during other proceedings, authorize the employment of stenographers for reporting and transcribing proceedings at such reasonable
Dutiesofrerees.
expense to the estate as the court may fix.
Duties ofreres Sc. 39. DUTrIE OF REFREEms.-a. Referees shall (1) give notice
to creditors and other parties in interest, as provided in this Act;
(2) prepare and file the schedules of property and lists of creditors
required to be filed by the bankrupts or cause the same to be done
when the bankrupts fail, refuse, or neglect to do so; (3) examine
all schedules of property, lists of creditors, and statements of affairs,
filed as provided under this Act, and cause such as are incomplete
and defective to be amended; (4) furnish or cause to be furnished
such information concerning proceedings before them as may be
requested by parties in interest; (5) declare dividends and cause
to be prepared dividend sheets showing the dividends declared
and to whom payable; (6) transmit to the clerks such papers as
may be on file before them whenever the same are needed in any
proceedings in courts and secure the return of such papers after
they have been used, or, if it be impractical to transmit the original
papers, transmit certified copies thereof by mail; (7) upon application of any party in interest, preserve the evidence taken, or
the substance thereof as agreed upon by the parties before them
when a stenographer is not in attendance; (8) prepare promptly
and transmit to the clerks certificates on petitions for review of
orders made by them, together with a statement of the questions
presented, the findings and orders thereon, the petition for review,
a transcript of the evidence or a summary thereof, and all exhibits(9) transmit forthwith to the clerks all bonds filed with and
approved by them, the originals of all orders made by them granting adjudications or dismissing the petitions as provided in this
Act, and certified copies of all orders made and entered by them,
granting, denying, or revoking discharges, or confirming or refusing
to confirm arrangements or plans or setting aside the confirmation
of arrangements or wage-earner plans and reinstating the proceedings or cases, and reports of the completion thereof; and (10)
safely keep, perfect, and transmit to the clerks, when the cases are
concluded, the records herein required to be kept by them.
Acts prohibited.
"b Referees shall not (1) act in cases in which they are directly
or

indirectly interested; (2) practice as attorneys and counselors at law
in any proceeding under this Act; or (3) purchase, directly or indi-

b

Petition or rw
person aggrieved

y order.

rectly, any property of an estate in any proceeding under this Act
c. A person aggrieved by an order of a referee may, within ten
days

after the entry thereof or within such extended time as the court
may for cause shown allow, file with the referee a petition for review
of such order by a judge and serve a copy of such petition upon the

52 STAT.]

859

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

adverse parties who were represented at the hearing. Such petition
shall set forth the order complained of and the alleged errors in
respect thereto. Upon application of any party in interest, the execution or enforcement of the order complained of may be suspended
by the court upon such terms as will protect the rights of all parties
in interest.
"SEC. 40. COMPENSATION OF REFEREES.-a. Referees shall receive as
full compensation for their services, payable after they are rendered,
a fee of $15, deposited with the clerk at the time the petition is filed
in each case, except when a fee is not required from a voluntary bankrupt; a fee of 25 cents for every proof of claim filed for allowance, to
be paid from the estate, if any, as a part of the cost of administration; and from estates which have been administered before them, 1
per centum commissions on all moneys disbursed to creditors by the
trustees or, upon confirmation of an arrangement, one-half of 1 per
centum on the amount to be paid to creditors in respect to the composition of debts and one-half of 1 per centum on the amount of the
debts whose maturity is to be extended and of the debts, if any, to be
paid in full. Referees in ancillary proceedings shall receive as full
compensation for their services, payable after they are rendered, a
fee of $15 deposited in each case with the clerk of the ancillary court
at the time the ancillary proceeding is instituted, and 1 per centum
commission on all moneys disbursed in the ancillary proceeding to
lien creditors, as well as on all moneys transmitted and on the fair
value of all property turned over in kind by the court of the ancillary jurisdiction to the court of primary jurisdiction. The judge
may, however, by standing rule or otherwise, fix a lower rate of
compensation, so that no referee shall receive excessive compensation
during his term of office and, in any case of an extension, the judge
may prescribe terms and conditions for the payment of the referee's
compensation.
"b. Whenever a case is transferred from one referee to another
the judge shall determine the proportion in which the fee and commissions therefor shall be divided between the referees.
"c. In the event of the reference of a case being revoked before
it is concluded, and when the case is specially referred, the judge
shall determine what part of the fee and commissions shall be paid
to the referee.
"SEC. 41. CONTEMII'S BEFORE RETEIIEES.-a. A person shall not, inl
proceedings before a referee, (1) disobey or resist any lawful order,
process, or writ; (2) misbehave during a hearing or so near the
place thereof as to obstruct the same; (3) neglect to produce, after
having been ordered to do so, any pertinent document; or (4) refuse
to appear after having been subpenaed, or, upon appearing, refuse
to take the oath as a witness, or having taken the oath, refuse to be
examined according to law: Provided, That a person other than a
bankrupt or, where the bankrupt is a corporation, its officers, or the
members of its board of directors or trustees or of other similar
controlling bodies, shall not be required to attend as a witness before
a referee at a place more than one hundred miles from such person's
place of residence or unless his lawful mileage and fee for one day's
attendance shall be first paid or tendered to him.
"b. The referee shall forthwith certify the facts to the judge, if
any person shall do any of the things forbidden in this section, and
he mav serve or cause to be served upon such person an order
requiring such person to appear before the judge upon a day certain
to show cause why he should not be adjudged in contempt by reason
of the facts so certified. The judge shall thereupon, in a summary
manner, hear the evidence as to the acts complained of and, if it is

Compensation of
referees.

Cases transferred
from one referee to
another.
Revocation of refer-

ence.

('onltampts
referees.

before

Proviso.

Attendance of witnesses.

Contempt proceedings.

Punishment.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Records of referees;
manner of keeping.

Separate record of
each case.

Certification a n d
transmittal to clerk.

Trustees.

Creditors' committees.

Attorneys.

Receivers and trustees, qualifications.

Death or removal.

Duties of trustees.

[52 STAT.

such as to warrant him in so doing, punish such person in the same
manner and to the same extent as for a contempt committed before
him, or commit such person upon the same conditions as if the doing
of the forbidden act had occurred with reference to the process of
the court of bankruptcy or in the presence of the judge.
"SEC. 42. RECORDS OF REFEREES.-a. The records of all proceedings
in each case before a referee shall be kept as nearly as may be in the
same manner as records are kept in equity cases in district courts of
the United States.
"b. A separate record shall be kept of the proceedings in each case
and shall, together with the papers on file, constitute the records
of the case.
"c. The record of the proceedings shall, when the case is concluded
before the referee, be certified to by him and shall, together with such
papers as are on file before him, be transmitted to the clerk and shall
remain in the office of the clerk as a part of the records of the court.
"SEC. 44. TRUSTEES; CREDITORS' COMMITErES; AND ATTORNEYS.-a.

The creditors of a bankrupt, exclusive of the bankrupt's relatives or,
where the bankrupt is a corporation, exclusive of its stockholders
or members, its officers, and the members of its board of directors or
trustees or of other similar controlling bodies, shall, at the first
meeting of creditors after the adjudication, or after a vacancy has
occurred in the office of trustee, or after an estate has been reopened,
appoint a trustee or three trustees of such estate. If the creditors
do not appoint a trustee or if the trustee so appointed fails to qualify
as herein provided, the court shall make the appointment.
"b. Such creditors may, at their first meeting, also appoint a
committee of not less than three creditors, which committee may
consult and advise with the trustee in connection with the administration of the estate, make recommendations to the trustee in the
performance of his duties and submit to the court any question
affecting the administration of the estate.
"c. An attorney shall not be disqualified to act as attorney for a
receiver or trustee merely by reason of his representation of a general
creditor.
"SEC. 45. QUALIFICATIONS OF RECEIVERS AND TRusTEES.-Receivers
and trustees shall be (1) individuals who are competent to perform
their duties and who reside or have an office in the judicial district
within which they are appointed; or (2) corporations authorized by
their charters or by law to act in such capacity and having an office
in the judicial district within which they are appointed.
"SEO. 46. DEATH OR REMOVAL OF RECEIVERS OR TRUsTEEs.-The death
or removal of a receiver or trustee shall not abate any suit or proceeding which he is prosecuting or defending at the time of his death
or removal, but the same may be proceeded with or defended by his
joint receiver or joint trustee or successor in the same manner as
though the same had been commenced or was being defended by such
joint receiver or joint trustee alone or by such successor.
"SEC. 47. DurIEs OF TRUSTEES.-a. Trustees shall (1) collect and
reduce to money the property of the estates for which they are
trustees, under the direction of the court, and close up the estates
as expeditiously as is compatible with the best interests of the
parties in interest; (2) deposit all money received by them in designated depositories; (3) account for and pay over to the estates under
their control all interest received by them upon funds belonging to
such estates; (4) disburse money only by check or draft on such
depositories; (5) keep records and accounts showing all amounts
and items of property received and from what sources, all amounts
expended and for what purposes and all items of property disposed

52 STAT.]

861

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

of; (6) set apart the bankrupts' exemptions allowed by law, if
claimed, and report the items and estimated value thereof to the
courts as soon as practicable after their appointment; (7) examine
the bankrupts (a) at the first meetings of creditors or at other
meetings specially fixed for that purpose, unless they shall already
have been fully examined by the referees, receivers, or creditors, and
(b) upon the hearing of objections, if any, to their discharges,
unless otherwise ordered by the court; (8) examine all proofs of
claim and object to the allowance of such claims as may be improper;
(9) oppose at the expense of estates the discharges of bankrupts
when they deem it advisable to do so; (10) furnish such information
concerning the estates of which they are trustees and their administration as may be requested by parties in interest; (11) pay
dividends within ten days after they are declared by the referees;
(12) report to the courts in writing the condition of the estates, the
amounts of money on hand, and such other details as may be
required by the courts, within the first month after their appointment and every two months thereafter, unless otherwise ordered by
the courts; (13) make final reports and file final accounts with the
courts fifteen days before the days fixed for the final meetings of
the creditors; and (14) lay before the final meetings of the creditors
detailed statements of the administration of the estates.
"b. Whenever three trustees have been appointed for an estate,
the concurrence of at least two of them shall be necessary to the
validity of their every act concerning the administration of the
estate.
"c. The trustee shall, within ten days after his qualification, record
a certified copy of the order approving his bond in the office where
conveyances of real estate are recorded in every county where the
bankrupt owns real property or an interest therein, not exempt from
execution, and pay the fee for such filing. He shall receive a compensation of 50 cents for each copy so filed which, together with
the filing fee, shall be paid out of the estate of the bankrupt as a
part of the expenses of administration.
"SEC. 48. COMPENSATION OF RECEIVERS, MARSHALS, AND TRUSTEES.-

a. RECEIVERS.-The compensation of receivers appointed under this
Act, for their services payable after they are rendered, shall be as
follows:
"(1) As CUSTODIANS.-Receivers appointed pursuant to clause (3)
of section 2 of this Act who serve as mere custodians shall receive
such amount as may be allowed by the court, but in no event to
exceed 2 per centum on the first $1,000 or less, and one-half of 1
per centum on all above $1,000 on moneys disbursed by them or
turned over by them to any persons, including lienholders, and also
upon moneys turned over by them to the trustee and on moneys
subsequently realized from property turned over by them in kind
to the trustee.
"(2) WITH ruLL PowERs.-Receivers appointed pursuant to clause
(3) of section 2 of this Act who serve otherwise than as mere custodians shall receive compensation by way of commissions upon the
moneys disbursed or turned over to any persons, including lienholders, by them and also upon the moneys turned over by them or
afterward realized by the trustees from property turned over in
kind by them to the trustees, such amount as the court may allow,
but in no event to exceed 6 per centum on the first $500 or less, 4
per centum on all in excess of $500 but not more than $1,500, 2 per
centum on all above $1,500 and not more than $10,000, and 1 per
centum on all above $10,000.

Concurrence of two
of three trustees necessary.

Recording of order
approving bond in
counties where bankrupt owns real property.
Fee.

Compensation of receivers, marshals, and
trustees.
Receivers.
As custodians.

With full powers.

PUBLIC LAWS-CH. 575-JUNE 22, 1938
Conducting busi-

Ancillary receivers.

Marshals.

Tr s tees

Normal adminitra.

[52 STAT.

(3) CONDUCTING BUSINEss.-Receivers
appointed pursuant to
clause (3) of section 2 of this Act who conduct the business of the
bankrupt as provided in clause (5) of section 2 of this Act, shall
receive such amount as may be allowed by the court, but in no event
to exceed twice the maximum allowance permitted by paragraph
(2) of this subdivision a.

"(4) ANCILLARY RECEIVERS.-The compensation of ancillary
receivers appointed pursuant to this Act shall be such amount as may
be allowed by the court of ancillary jurisdiction, but in no event
to exceed the maximum compensation permitted by paragraphs (1),

(2), or (3) of this subdivision a, as the case may be, based upon
assets in such ancillary jurisdiction.
"b. MaRsHALS.-The compensation of marshals, payable after
their services are rendered, shall be such amount as may be allowed
by the court, but in no event to exceed the maximum allowance permitted for receivers for like services.
"c. TRUSTEEs.-The compensation of trustees for their services,
payable after they are rendered, shall be a fee of $5 for each estate,
deposited with the clerk at the time the petition is filed in each
case, except when a fee is not required from a voluntary bankrupt,
and such further sum as the court may allow, as follows:
" (1) NORMAL ADMINISTRATION.-When the trustee does not conduct
the business of the bankrupt, such sum as the court may allow, but
in no event to exceed 6 per centum on the first $500 or less, 4
per centum on moneys in excess of $500 and not more than $1,500,

2 per centum on moneys in excess of $1,500, and not more than
PWeo.
compensation allows$.does no excee

Conducting

busi-

$10,000, and 1 per centum on moneys in excess of $10,000, upon all
moneys disbursed or turned over by them to any persons, including
lienholders: Provided, however, That if in any case, after the trustee
has paid all expenses of administration and has realized upon all
available assets, the maximum compensation allowable to him hereunder does not exceed $100, the court may of its own motion allow
the trustee a fee which with the commissions, if any, paid or to be

paid him, shall not exceed $100.
"(2) CONDUCTING BUSINESS.-Trustees who conduct the business of

the bankrupts as provided in clause (5) of section 2 of this Act shall

receive such amount as may be allowed by the court, but in no event

to exceed twice the maximum allowance permitted by paragraph (1)
of this subdivision c.
Apportionment of
"d. APPORTIONMENT OF FEEs.-In the event of the appointment, concurrently or successively, of more than one receiver of an estate or of
more than one ancillary receiver in the same jurisdiction, or in the
event of the administration of an estate by three trustees instead of
one trustee or by successive trustees, the court shall apportion the fees
and commissions among such receivers, ancillary receivers, or trustees,
as the case may be, according to the services actually rendered, so that
there shall not be paid to any such group a greater amount than that
to which one receiver, ancillary receiver, or trustee, respectively, would
be entitled.
penithhoding con"e. WITHHOLDING COMPENSATION.-The court may, in its discretion,
withhold all compensation from any receiver, trustee, attorney, or any
other person who has been removed from office or dismissed because
of the unlawful sharing of fees or for any other cause.
"f. AmRANGEMENTS.-In the case of an arrangement confirmed
under this Act, the compensation of a marshal, receiver, or trustee in
a prior pending bankruptcy proceeding superseded by the arrangement proceeding, or of a receiver appointed in an original proceeding
for an arrangement under this Act, shall be the same as hereinabove
provided for a marshal, receiver, or trustee, as the case may be, for

52 STAT.]

863

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

like services. Such compensation shall be computed upon all moneys
disbursed or turned over by him to any persons, including lienholders,
upon all moneys to be paid to unsecured creditors upon the confirmation of the arrangement and thereafter, pursuant to the terms of the
arrangement, and where under the arrangement any part of the consideration to be paid is other than money, upon the amount of the fair
value of such consideration: Provided, however, That the court may,
in respect to all moneys to be paid to such unsecured creditors after
the confirmation of the arrangement, prescribe such time for the payment of the compensation computed thereon as in the particular case
may be fair and equitable.
"g. PLANS OF REORGANIZATION.-In the case of a plan of reorganiza-

tion confirmed under this Act, the compensation of a marshal, receiver,
or trustee, in a prior pending bankruptcy proceeding superseded by
the reorganization proceeding shall be the same as hereinabove provided for a marshal, receiver, or trustee, as the case may be, for like
services. Such compensation shall be computed upon all moneys
disbursed or turned over by him to any persons, including lienholders, upon all moneys to be paid to unsecured creditors upon the
consummation of the plan of reorganization and thereafter, pursuant
to the terms of the plan of reorganization, and where under the plan
of reorganization any part of the consideration to be paid to unsecured creditors is other than money, upon the amount of the fair value
of such consideration: Provided, however, That the court may, in
respect to the moneys to be paid to such unsecured creditors after the
consummation of the plan of reorganization, prescribe such time for the
payment of the compensation computed thereon as in the particular
case may be fair and equitable.

Pr

t of com-

pensation.

Plans of reorganiza-

Payment

of

corn-

pensation.

peston
aeof
"SEC. 49. ACCOUNTS AND PAPERS OF RECEIVERS AND TRUSTEES.-The couInsa
accounts and papers of receivers and trustees shall be open to the receivers and trustees.

inspection of officers and all parties in interest.
"SEC. 50. BoNDs.-a. Referees, before assuming the duties of their
offices and within such time as the district courts of the United States
having jurisdiction shall prescribe, shall qualify by entering into bond
to the United States in such sum as shall be fixed by such courts, not
to exceed $5,000, with such sureties as shall be approved by such
courts conditioned for the faithful performance of their official duties.
"b. Receivers and trustees, before entering upon the performance
of their official duties and within five days after their appointment
or within such further time, not to exceed five days, as the court may
permit, shall qualify by entering into bond to the United States,
with such sureties as shall be approved by the courts, conditioned
for the faithful performance of their official duties.
"c. The court shall fix the amount of receivers' and trustees'
bonds and may increase or decrease the amounts at any time when
cause therefor appears.
"d. The court shall require evidence as to the actual value of the
property of sureties.
"e. There shall be at least two sureties upon each bond, except as
provided in subdivision g of this section.
"f. The actual value of the property of the sureties, over and
above their liabilities and exemptions, on each bond shall equal at
least the amount of such bond.
"g. Corporations organized for the purpose of becoming sureties
on bonds or authorized by law to do so may be accepted as sole

sureties upon the bonds of referees, receivers, and trustees whenever
the courts are satisfied that the rights of all parties in interest will
be thereby amply protected.

Bondso"refers.

u

teceivers and tr s-

Amounts.

Sureties.

Accepte
ions as

rties.

864

PUBLIC LAWS-CH. 575-JUNE 22, 1938

"h. Bonds of referees, receivers, trustees, and designated depositories shall be filed of record in the office of the clerk of the court
and may be proceeded upon in the name of the United States for the
use of any person injured by a breach of their conditions or may
be enforced as provided in subdivision n of this section.

Filing of bonds.

reeives or trustees.

Bonds of joint

ceivers. etc.
Failure

re-

to give

bond.

Proceedings

Breach

[52 STAT.

upon

of obliga-

tion.

Clerks, dutie.

Compensation,
lerks an marsals.

Annual statistical
report by Attorney
ePneral to ongress

"i. Receivers or trustees shall not be liable personally or on their

bonds to the United States for any penalties or forfeitures incurred
by the bankrupts under this Act of whose estates they are receivers
or trustees.
Joint receivers or trustees may give joint or several bonds.
If any
receiver or trustee shall fail to
bond as
herein provided and within the time limited, he shall be deemed to
have declined his appointment and such failure shall create a
vacancy in his office.
"l. Proceedings upon referees' bonds shall not be brought subsequent to two years after the alleged breach of the bond.
"m. Proceedings upon receivers' or trustees' bonds shall not be
brought subsequent to two years after their respective discharges.
"n. In the event of the breach of any obligation of a bond furnished pursuant to this Act, the court may, upon application of any
party in interest and after notice, summarily determine the damages
and by appropriate process enforce the collection thereof from those

liable on the bond.
"SEC. 51. DUIES OF CLERxK.-Clerks shall (1) account for, as for
other fees received by them, the clerk's fee paid in each case and
such other fees as may be received for certified copies of records
which may be prepared for persons other than officers- (2) collect
the fees of the clerk, referee, and trustee in each case instituted before
filing the petition, except the petition of a proposed voluntary bankrupt which is accompanied by an affidavit stating that the petitioner
is without and cannot obtain the money with which to pay such fees;
(3) collect the fees of the clerk and referee in each ancillary proceeding before filing the petition whereby the ancillary proceeding
is instituted; (4) deliver to the referees all papers which may be
referred to them or, if the offices of such referees are not in the
same cities or towns as the offices of such clerks, transmit such papers
by mail and in like manner return papers which were received from
such referees after they have been used; and (5) within ten days
after each case has been closed pay to the referee, if the case was
referred, the fee collected for him and to the trustee the fee collected
for him at the time of filing the petition.
"SEC. 52. COMPENSATION OF CLERKS AND MARSHALS.-a. Clerks shall

charge and collect for their service to each estate, whether in a court

of primary or ancillary jurisdiction, a filing fee of $10, except when
a fee is not required from a voluntary bankrupt.
"b. Marshals shall charge the estate where an adjudication in bankruptcy is made, except as herein otherwise provided, for the performance of their services in proceedings in bankruptcy, the same fees,
and account for them in the same way, as they are entitled to charge
for the performance of the same or similar services in other cases in
accordance with laws in force on July 1, 1898, or such as may be
thereafter enacted, fixing the compensation of marshals.
"SEC. 53. DUTIES OF TTORNE GENERAL.-The Attorney General
annually shall lay before Congress statistical tables showing for the
whole country and by States and Federal districts and divisions
thereof the number of voluntary and involuntary cases referred, a
classification of the bankrupts therein by occupations, the number of
cases concluded, the number of discharges granted and denied, the

52 STAT.]

net total of proceeds realized, the average amount realized per case,
the amount of the administration expenses, total and classified, and
the percentages of such total and classified expenses as compared with
the total net realization, the total amounts paid to creditors of all
classes and the amounts paid to each class, the percentages in a comparison of the total amount and the amount of each class with such
total net realization, and the amount of the obligations owing to
creditors in total and by classes and the amounts and percentages
paid on such total and to such classes out of such net realization. Like
information relative to cases arising under the provisions of chapters
VIII, IX, X, XI, XII, and XIII of this Act shall be compiled and
included in such tables.
"CHAPTER VI-CREDITORS
"SEC. 55. MEETINGS OF CREDITORS.-a. The court shall cause the first

meeting of the creditors of a bankrupt to be held not less than ten
nor more than thirty days after the adjudication, at the county seat
of the county in which the bankrupt has had his principal place of
business, resided or had his domicile; or if that place would be
manifestly inconvenient as a place of meeting for the parties in
interest, or if the bankrupt is one who does not do business, reside, or
have his domicile within the United States, the court shall fix a
place for the meeting which is the most convenient for parties in
interest. If such meeting should by any mischance not be held within
such time, the court shall fix the date, as soon as may be thereafter,
when it shall be held.
"b. At the first meeting of creditors, the judge or referee shall
preside and, before proceeding with other business, may allow or
disallow the claims of creditors there presented, and shall publicly
examine the bankrupt or cause him to be examined, and may permit
creditors to examine him.
"c. The creditors shall at each meeting take such steps as may be
pertinent and necessary for the promotion of the best interests of
the estate and the enforcement of this Act.
"d. The court shall call a meeting of creditors whenever onefourth or more in number of those who have proved their claims
shall file a written request to that effect; if such request is signed
by a majority of such creditors, which number represents a majority
in amount of such claims, and contains a request for such meeting
to be held at a designated place, the court shall call such mleeting
at such place within thirty days after the date of the filing of the
request.
"e. Whenever the affairs of the estate are ready to be closed a
final meeting of creditors shall be ordered: Providced, hooever, That
a no-asset case may be closed without ordering such final meeting.
"SEC.

865

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

56. VOTERS AT MEETINGS OF CREDITORS.-a. Creditors shall

pass upon matters submitted to them at their meetings by a majority
vote in number and amount of claims of all creditors whose claims
have been allowed and who are present, except as herein otherwise
provided.
"b. Except as otherwise provided in this Act, creditors holding
claims which are secured or have priority shall not in respect to
such claims be entitled to vote at creditors' meetings, nor shall such
claims be counted in computing either the number of creditors or
the amount of their claims, unless the amounts of such claims exceed
the values of such securities or priorities, and then only for such
excess.
36525°-38-55

47 Stat. 1467,48 Stat.
798.
Post, pp. 883, 905,
916, 930.

Chapter VI-Creditors.
Meetings; time and
place.

Presiding officer,
powers.

Creditors,
etc.

duties,

Call of meeting by
court.

Final meeting.
Proviso.
No-asset cases.
Voters at meetings
of creditors.

Secured, etc., creditors.

PUBLIC LAWS-CH. 575-JUNE 22, 1938
Claims of $50 orless.

Proof and allowance
of claims.

Production of
instrument on which
claim is founded.

Filing of proofs of
claims.

Allowance.

Proviso.
Unliquidated or
contingent claims.

Secured, etc., creditors.

Objections to claims,
determination of.

V o i d or voidable
preferences, etc.

Determination of
value of securities
held by secured creditors.

Court supervision,
etc.
Claim secured by
individual undertaklng of another.

[52 STAT.

"c. Claims of $50 or less shall not be counted in computing the
number of creditors voting or present at creditors' meetings, but
shall be counted in computing the amount.
"SEC. 57. PROOF AND ALLOWANCE OF CLAMs.-a. A proof of claim

shall consist of a statement under oath, in writing and signed by a
creditor, setting forth the claim; the consideration therefor; whether
any and, if so, what securities are held therefor; and whether any
and, if so, what payments have been made thereon; and that the
claim is justly owing from the bankrupt to the creditor.
"b. Whenever a claim is founded upon an instrument of writing,
such instrument, unless lost or destroyed, shall be filed with the proof
of claim. If such instrument is lost or destroyed, a statement of

such fact and of the circumstances of such loss or destruction shall
be filed under oath with the claim. After the claim is allowed or
disallowed, such instrument may be withdrawn by permission of the
court upon leaving a copy thereof on file with the claim.
"c. Proofs of claim may, for the purpose of allowance, be filed
by the claimants in the court of bankruptcy where the proceedings
are pending or before the referee if the case has been referred.
"d. Claims which have been duly proved shall be allowed upon
receipt by or upon presentation to the court, unless objection to their
allowance shall be made by parties in interest or unless their consideration be continued for cause by the court upon its own motion:
Provided, however, That an unliquidated or contingent claim shall
not be allowed unless liquidated or the amount thereof estimated in the
manner and within the time directed by the court; and such claim
shall not be allowed if the court shall determine that it is not
capable of liquidation or of reasonable estimation or that such liquidation or estimation would unduly delay the administration of the
estate or any proceeding under this Act.
"e. Claims of secured creditors and those who have priority may
be temporarily allowed to enable such creditors to participate in the
proceedings at creditors' meetings held prior to the determination
of the value of their securities or priorities, but shall be thus temporarily allowed for such sums only as to the courts seem to be owing
over and above the value of their securities or priorities.
"f. Objections to claims shall be heard and determined as soon as
the convenience of the court and the best interests of the estates and
the claimants will permit.
"g. The claims of creditors who have received or acquired preferences, liens, conveyances, transfers, assignments or encumbrances,
void or voidable under this Act, shall not be allowed unless such
creditors shall surrender such preferences, liens, conveyances,
transfers, assignments, or encumbrances.
"h. The value of securities held by secured creditors shall be
determined by converting the same into money according to the
terms of the agreement pursuant to which such securities were
delivered to such creditors, or by such creditors and the trustee by

agreement, arbitration, compromise or litigation, as the court may
direct, and the amount of such value shall be credited upon such
claims, and a dividend shall be paid only on the unpaid balance.
Such determination shall be under the supervision and control of
the court.
"i. Whenever a creditor whose claim against a bankrupt estate is
secured by the individual undertaking of any person fails to prove
and file such claim, such person may do so in the creditor's name
and, if he discharge such undertaking in whole or in part, he shall
be subrogated to that extent to the rights of the creditor.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"j. Debts owing to the United States or any State or subdivision
thereof as a penalty or forfeiture shall not be allowed, except for
the amount of the pecuniary loss sustained by the act, transaction,
or proceeding out of which the penalty or forfeiture arose, with
reasonable and actual costs occasioned thereby and such interest
as may have accrued thereon according to law.
"k. Claims which have been allowed may be reconsidered for
cause and reallowed or rejected in whole or in part according to
the equities of the case, before but not after the estate has been
closed.
"1. Whenever a claim shall have been reconsidered and rejected, in
whole or in part, upon which a dividend has been paid, the trustee
may recover from the creditor the amount of the dividend received
upon the claim if rejected in whole, or the proportional part thereof
if rejected only in part, and the trustee may also recover any excess
dividend paid to any creditor. The court shall have summary jurisdiction of a proceeding by the trustee to recover any such dividends.
"m. The claim of any estate which is being administered in bankruptcy against any like estate may be proved and filed by the
receiver or trustee and allowed by the court in the same manner and
upon like terms as the claims of other creditors.
"n. Except as otherwise provided in this Act, all claims provable
under this Act, including all claims of the United States and of
any State or subdivision thereof, shall be proved and filed in the manner provided in this section. Claims which are not filed within six
months after the first date set for the first meeting of creditors shall
not be allowed: Provided, however, That the court may, upon application before the expiration of such period and for cause shown,
grant a reasonable fixed extension of time for the filing of claims by
the United States or any State or subdivision thereof: Provided
further, That, except in proceedings under chapters X, XI, XII,
and XIII of this Act, the right of infants and insane persons
without guardians, without notice of the bankruptcy proceedings, may continue six months longer: And provided further,
That a claim arising in favor of a person by reason of the recovery by the trustee from such person of money or property, or the
avoidance by the trustee of a lien held by such person, may be
filed within thirty days from the date of such recovery or avoidance,
but if the recovery is by way of a proceeding in which a final judgment has been entered against such person, the claim shall not be
allowed if the money is not paid or the property is not delivered to
the trustee within thirty days from the date of the rendering of such
final judgment, or within such further time as the court may allow.
When in any case all claims which have been duly allowed have been
paid in full, claims not filed within the time hereinabove prescribed
may nevertheless be filed within such time as the court may fix or
for cause shown extend and, if duly proved, shall be allowed against
any surplus remaining in such case.
"SEc. 58. NoTIcEs.-a. Creditors shall have at least ten days'
notice by mail, to their respective addresses as they appear in the
list of creditors of the bankrupt or as afterward filed with the
papers in the case by the creditors, of (1) all examinations of the
bankrupt, if the court so directs; (2) all hearings upon applications for the confirmation of arrangements and wage-earner plans;
(3) all meetings of creditors; (4) all proposed sales of property:
Provided, That the court may, upon cause shown, shorten such time
or order an immediate sale without notice, (5) the filing of all
accounts of the receiver and trustee, for which confirmation is asked,
and the time when they will be examined and passed upon; (6) the

867
Debts to United
States, etc.

Reconsideration
allowed claims.

of

Reconsidered claims
on which dividend has
been paid, etc.

Proceedings for recovery.
Claims of one bankrupt estate against
another.

Proofof claims.

Time limitation for
filing.
Provisos.
Extensions.

Infants, etc.
Post, pp. 883, 905,
916, 930.

Claims arising by
reason of recovery,
etc., by trustee.

Notices.
Creditors.

Proisao
Sales of property.

868

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

proposed compromise of any controversy in which the amount
claimed by either party in money or value exceeds $1,000; (7) the
proposed dismissal of the proceedings, in cases where notice is
required by subdivision g of section 59 of this Act; and (8) all appli-

Prorso.

Where creditors'
committee has been
appointed.

Filing of objections
to bankrupt's discharge.

Hering, time and
place.

By whom notice is
given.

First meeting, etc.

Orders of adjudicatlon, etc., copy to
Commissioner of Internal Revenue.

Who may file and
dismiss petitions.

Filing in triplicate.
Joining in petition
ofsufficient number of
creditors.

cations by receivers, ancillary receivers, marshals, trustees, and
attorneys for compensation from the estate for services rendered,
specifying the amount and by whom made: Provided, That where
a creditors' committee has been appointed pursuant to this Act, the
notice required by clauses (1), (4) and (6) of this subdivision shall
be sent only to such committee and to the creditors who have filed
with the court a demand that all notices under this subdivision
be mailed to them.
"b. The court shall give at least thirty days' notice by mail of
the last day fixed by its order for the filing of objections to a
bankrupt's discharge (1) to the creditors, in the manner prescribed
in subdivision a of this section; (2) to the trustee and his attorney,
at their respective addresses as filed by them with the court; and
(3) to the United States attorney of the judicial district wherein
the proceeding is pending. The court shall also give at least thirty
days' notice by mail of the time and place of a hearing upon objections to a bankrupt's discharge (1) to the bankrupt, at his last
known address as appears in his petition, schedules, list of creditors,
or statement of affairs, or, if no address so appears, to his last-known
address as furnished by the trustee or other party after inquiry;
(2) to the bankrupt's attorney, if any, at his address as filed by
him with the court; and (3) to the objecting parties and their
attorneys, at their respective addresses as filed by them with the
court.
"c. All notices shall be given by the referee unless otherwise
ordered by the judge. Any notice required by this Act may be
waived in writing by any person entitled thereto.
"d. Notice to creditors of the first meeting shall be published
at least once and may be published such number of additional times
as the court may direct; the last publication shall be at least one
week prior to the date fixed for the meeting. Other notices may
be published as the court shall direct.
"e. The clerk shall mail to the Commissioner of Internal Revenue
a certified copy of every order of adjudication forthwith upon the
entry thereof. The court shall, in every case, mail or cause to be
mailed a copy of the notice of the first meeting of creditors to the
Commissioner of Internal Revenue and to the collector of internal
revenue for the district in which the court is located.
"SEC. 59. WHO MAY FILE AND DISMISS PErTITONS.-a. Any qualified

person may file a petition to be adjudged a voluntary bankrupt.
"b. Three or more creditors who have provable claims fixed as to
liability and liquidated as to amount against any person which
amount in the aggregate in excess of the value of securities held by
them, if any, to $500 or over; or if all of the creditors of such person
are less than twelve in number, then one of such creditors whose claim
equals such amount may file a petition to have him adjudged a
bankrupt.
"c. Petitions shall be filed in triplicate, one copy for the clerk,
one for service on the bankrupt, and one for the referee.
"d. If it be averred in the petition that the creditors of the bankrupt, computed as provided in subdivision e of this section, are
less than twelve in number, and less than three creditors have joined
as petitioners therein, and the answer avers the existence of a larger
number of creditors, there shall be filed with the answer a list under
oath of all the creditors, with their addresses and a brief statement

52 STAT.]

869

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

of the nature of their claims and the amounts thereof, and thereupon
the court shall cause all such creditors to be notified of the pendency
of such petition and shall delay the hearing upon such petition for a
reasonable time, to the end that the parties in interest shall have
an opportunity to be heard. If upon such hearing it shall appear
that a sufficient number of qualified creditors have joined in such
petition or, if prior to or during such hearing, a sufficient number
of qualified creditors shall join therein, the case may be proceeded
with, but otherwise it shall be dismissed.
"e. In computing the number of creditors of a bankrupt for the
purpose of determining how many creditors must join in the petition,
there shall not be counted (1) such creditors as were employed by the
bankrupt at the time of the filing of the petition; (2) creditors who
are relatives of the bankrupt or, if the bankrupt is a corporation,
creditors who are stockholders or members, officers or members of
the board of directors or trustees or of other similar controlling
bodies of such bankrupt corporation; (3) creditors who have participated, directly or indirectly, in the act of bankruptcy charged in the
petition; (4) secured creditors whose claims are fully secured; and
(5) creditors who have received preferences, liens, or transfers void
or voidable under this Act.
"f. Creditors other than the original petitioners may at any time
enter their appearance and join in the petition.
"g. A voluntary or involuntary petition shall not be dismissed
upon the application of the petitioner or petitioners, or for want of
prosecution, or by consent of parties, until after notice to the creditors as provided in section 58 of this Act, and to that end the court
shall, upon entertaining an application for dismissal, require the
bankrupt to file a list, under oath, of all his creditors, with their
addresses, shall cause such notice to be sent to the creditors of the
pendency of such application and shall delay the hearing thereon for
a reasonable time to allow all creditors and parties in interest an
opportunity to be heard. If the bankrupt shall fail to file such list
within the time fixed by the court, such list may be filed by the
petitioning creditors according to the best of their knowledge,
information, and belief: Provided, however, That in the case of a
dismissal for failure to pay the costs of the bankruptcy proceedings,
such notice of dismissal shall not be required.
"h. A creditor shall not be estopped to act as a petitioning creditor
because he participated in any prior matter or judicial proceeding,
having for its purpose the adjustment or settlement of the affairs
of the debtor or the liquidation of his property, or to allege such
prior matter or proceeding as an act of bankruptcy, unless he has
consented thereto in writing with knowledge of the facts, if any,
which would be a bar to the discharge of the debtor under this Act.
"SEC. 60. PREFERrED CPREDTORS.-a. A preference is a transfer, as
defined in this Act, of any of the property of a debtor to or for the
benefit of a creditor for or on account of an antecedent debt, made
or suffered by such debtor while insolvent and within four months
before the filing by or against him of the petition in bankruptcy, or of
the original petition under chapter X, XI, XII, or XIII of this Act,
the effect of which transfer will be to enable such creditor to obtain a
greater percentage of his debt than some other creditor of the same
class. For the purposes of subdivisions a and b of this section, a
transfer shall be deemed to have been made at the time when it became
so far perfected that no bona-fide purchaser from the debtor and no
creditor could thereafter have acquired any rights in the property so
transferred superior to the rights of the transferee therein, and, if such
transfer is not so perfected prior to the filing of the petition in bank-

Computation of
number; certain
creditors not counted.

Creditors other than
original petitioners.
Dismissal provisions.

Ante, p. 867.

Priso.
Dismissal for failure

to pay costs.

Creditors participating in prior prooe(iing

atoadJutt af-

fairs of debtor.

Preferred creditors.
Preference defined.

Post, pp. 883, 905,
916, 930.
When transfer
deemed to have been
made.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

ruptcy or of the original petition under chapter X, XI, XII or XIII
of this Act, it shall be deemed to have been made immediately before
bankruptcy.
Voidable

prefer-

"b. Any such preference may be avoided by the trustee if the creditor

receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable
Recovery.
cause to believe that the debtor is insolvent. Where the preference is
voidable, the trustee may recover the property or, if it has been converted, its value from any person who has received or converted such
property,'except a bona-fide purchaser from or lienor of the debtor's
ieni8
here pur- transferee for a present fair equivalent value: Provided, however,
chaser has given less That where such purchaser or lienor has given less than such value,
vaiue.
he shall nevertheless have a lien upon such property, but only to the
extent of the consideration actually given by him. Where a preference by way of lien or security title is voidable, the court may on due
notice order such lien or title to be preserved for the benefit of the
estate, in which event such lien or title shall pass to the trustee. For
Jurisdiction
the purpose of any recovery or avoidance under this section, where
plenary proceedings are necessary, any State court which would have
had jurisdiction if bankruptcy had not intervened and any court of
bankruptcy shall have concurrent jurisdiction.
Preferehered creditor
a
has been preferred, and afterward in good faith
giving further credit

without security,

gives the debtor further credit without security of any kind for prop-

erty which becomes a part of the debtor's estate, the amount of such
new credit remaining unpaid at the time of the adjudication in bankruptcy may be set off against the amount which would otherwise be
recoverable from him.
Payment to attorney, etc., by debtor

in contemplation of
ilin of petition.

a

Where bankrupt is

tockbroker

Definitions.

"d. If a debtor shall, directly or indirectly, in contemplation of the

filing of a petition by or against him, pay money or transfer property
to an attorney and counselor at law, solicitor in equity, or proctor in
admiralty for services to be rendered, the transaction shall be reexamined by the court on petition of the trustee or any creditor and
shall be held valid only to the extent of a reasonable amount to be
determined by the court, and the excess may be recovered by the
trustee for the benefit of the estate.
Wi
"e. (1) Where
the bankrupt is a stockbroker, the following defini-

tions and provisions of this subdivision shall apply: 'Property' shall

include cash, securities, whether or not negotiable, and all other
property of similar character; 'customers' of a stockbroker shall
include persons who have claims on account of securities received,
acquired, or held by the stockbroker from or for the account of such
persons (a) for safekeeping, or (b) with a view to sale, or (c) to
cover consummated sales, or (d) pursuant to purchases, or (e) as
collateral security, or (f) by way of loans of securities by such
persons to the stockbroker, and shall include persons who have
claims against the stockbroker arising out of sales or conversions of
such securities; 'cash customers' shall mean customers entitled to
immediate possession of such securities without the payment of any
sum to the stockbroker; the same person may be a cash customer
with reference to certain securities and not a cash customer with
reference to other securities, the 'net equity' of a customer's account
shall be determined by excluding any specifically identifiable securities reclaimable by the customer and by subtracting the indebtedness
of the customer to the stockbroker from the sum which would have
been owing by the stockbroker to the customer had the stockbroker
liquidated, by sale or purchase on the date of bankruptcy, the
remaining securities or security commitments of the customer.

52 STAT.]

871

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"(2) All property at any time received, acquired, or held by a
stockbroker from or for the account of customers, except cash
customers who are able to identify specifically their property in the
manner prescribed in paragraph (4) of this subdivision and the
proceeds of all customers' property rightfully transferred or unlawfully converted by the stockbroker, shall constitute a single and
separate fund; and all customers except such cash customers shall
constitute a single and separate class of creditors, entitled to share
ratably in such fund on the basis of their respective net equities

Property held for
account of customers
to constitute single
fund; exception.

as of the date of bankruptcy: Provided, however, That such fund
shall to the extent approved by the court be subject to the priority
of payment of the costs and expenses enumerated in clauses (1) and
(2) of subdivision a of section 64 of this Act. If such fund shall
not be sufficient to pay in full the claims of such class of creditors,
such creditors shall be entitled, to the extent only of their respective
unpaid balances, to share in the general estate with the general
creditors.
"(3) Any property remaining after the liquidation of a pledge
made by a stockbroker shall be apportioned between his general estate
and such single and separate fund in the proportion in which the
general property of the stockbroker and the property of his customers
contributed to such pledge.
"(4) No cash received by a stockbroker from or for the account
of a customer for the purchase or sale of securities, and no securities
or similar property received by a stockbroker from or for the
account of a cash customer for sale and remittance or pursuant to
purchase or as collateral security, or for safekeeping, or any substitutes therefor or the proceeds thereof, shall for the purposes of
this subdivision e be deemed to be specifically identified, unless such
property remained in its identical form in the stockbroker's possession until the date of bankruptcy, or unless such property or any
substitutes therefor or the proceeds thereof were, more than four
months before bankruptcy or at a time while the stockbroker was
solvent, allocated to or physically set aside for such customer, and
remained so allocated or set aside at the date of bankruptcy.
"(5) Where such single and separate fund is not sufficient to pay
in full the claims of such single and separate class of creditors, a
transfer by a stockbroker of any property which, except for such
transfer, would have been a part of such fund may be recovered by
the trustee for the benefit of such fund, if such transfer is voidable or
void under the provisions of this Act. For the purpose of such
recovery, the property so transferred shall be deemed to have been
the property of the stockbroker and, if such transfer was made to
a customer or for his benefit, such customer shall be deemed to have
been a creditor, the laws of any State to the contrary notwithstanding. If any securities received or acquired by a stockbroker from
a cash customer are transferred by the stockbroker, such customer
shall not have any specific interest in or specific right to any securities of like kind on hand at the time of bankruptcy, but such securities of like kind or the proceeds thereof shall become part of such
single and separate fund: Provided, however, That a customer shall
have a specific title to securities (a) which have been physically set
aside by a stockbroker, more than four months before his bankruptcy
or while solvent, in safekeeping for such customer, and so retained
until the date of bankruptcy, regardless of the name in which such
securities are registered, or (b) which a stockbroker, more than four
months before his bankruptcy or while solvent, caused to be registered
in the name of such customer.

Proviso.
Payment of costs
and expenses.

Apportionment of
property remaining
after liquidation of
pledge.

Cash, etc., not
deemed
specifically
identified; exception.

Where fund not sufficient to pay creditors.

Proeiso.

Securities to which
customer has specific
title.

PUBLIC LAWS-CH. 575-JUNE 22, 1938
tapter

"CHAPTER VII-ESTATES

VII-Es-

Depositories

"SEC. 61. DEPosIToRIEs FOR MONEY.-The judges of the several
courts of bankruptcy shall designate, by order, banking institutions
as depositories for the money of estates under this Act, as convenient
as may be to the residences of receivers and trustees, and shall require
from each such banking institution a good and sufficient bond with
surety, to secure the prompt repayment of the deposit. Said judges

for

Government secu-

may, in accordance with the provisions of, and the authority conferred in section 1126 of the Revenue Act of 1926, as amended (U. S.
C., title 6, sec. 15), accept the deposit of the securities therein desig-

44 Stat. t2.

idposts.

1 Ut

C.

Custody of

tecurity

[52 STAT.

nated, in lieu of a surety or sureties upon such bond and may, from
time to time as occasion may require, by like order increase or decrease
the number of depositories or the amount of any bond or other security
or change such depositories: Provided, That no security in the form
of a bond or otherwise shall be required in the case of such part of
2.
the deposits as are insured under section 12 B of the Federal Reserve
securi- Act, as amended: And provided further, That depository banks shall
place such securities, accepted for deposit in lieu of a surety or sureties upon depository bonds, in the custody of Federal Reserve banks
or branches thereof designated by the judges of the several courts of
bankruptcy, subject to the orders of such judges.

by deposi-

All national bank-

ing associations designated as depositories, pursuant to the provisions
of this section of this Act, are authorized to give such security as
may be required. All pledges of securities heretofore made for the
purposes herein named are hereby ratified, validated and approved.
pensestf ates.d

"SEC.

62. EXPENSES OF ADMINISTERING

ESTATES;

UNAUTHORIZED

SHARING OF FEES; WITHHOLDING ALLOWANCES.-a. The actual and

Unauthorized

shar-

Lapartners, etc.

Petitionfercompensation.

necessary costs and expenses incurred by officers in the administration
of estates shall, except where other provisions are made for their
payment, be reported in detail, under oath, and examined and
approved or disapproved by the court. If approved, they shall be
paid or allowed out of the estates in which they were incurred.
"b. When approved by the judge, the necessary costs and expenses
of referees incidental to the prosecution of proceedings and the
administration of estates pending before them may be apportioned to
and paid out of such estates by such method as may be authorized by
rule prescribed by the judge. In the case of referees whose offices are
exclusively devoted to the conduct of the business of the court, such
costs and expenses shall include necessary disbursements approved by
the judge for the establishing, equipping, and maintaining of such
offices, and any property acquired for such offices shall belong to the
United States for the use and be under the control of the court.
tc. A

custodian, receiver, or trustee or the attorney for any of

them, or any other attorney, rendering services in a proceeding under
this Act or in connection with such proceeding, shall not in any
form or guise share or agree to share his compensation for such
services with any person not contributing thereto, or share or agree
to share in the compensation of any person rendering services in a
proceeding under this Act or in connection with such proceeding, to
which services he has not contributed: Provided, however, That an

attorney-at-law may share such compensation with a law partner or
with a forwarding attorney-at-law, and may share in the compensation of a law partner.
"d. A custodian, receiver, or trustee or the attorney for any of
them, or any other attorney, seeking compensation for services rendered by him in a proceeding under this Act or in connection with
such proceeding, shall file with the court his petition setting forth
the value and extent of the services rendered, the amount requested

52 STAT.]

and what allowances, if any, have theretofore been made to him.
Such petition shall be accompanied by his affidavit stating whether
an agreement or understanding exists between the petitioner and
any other person for a division of compensation and, if so, the nature
and particulars thereof. If satisfied that the petitioner has, in any
form or guise, shared or agreed to share his compensation or in
the compensation of any other person contrary to the provisions of
this subdivision, the court shall withhold all compensation from
such petitioner.
"SEc. 63. DEBTS WHICH MAY BE PROVED.-a. Debts of the bankrupt may be proved and allowed against his estate which are
founded upon (1) a fixed liability, as evidenced by a judgment or an
instrument in writing, absolutely owing at the time of the filing of
the petition by or against him, whether then payable or not, with
any interest thereon which would have been recoverable at that
date or with a rebate of interest upon such as were not then payable
and did not bear interest; (2) costs taxable against a bankrupt who
was at the time of the filing of the petition by or against him
plaintiff in a cause of action which would pass to the trustee and
which the trustee declines to prosecute after notice; (3) a claim for
taxable costs incurred in good faith by a creditor before the filing
of the petition in an action to recover a probable 1 debt; (4) an open
account, or a contract express or implied; (5) provable debts reduced
to judgments after the filing of the petition and before the consideration of the bankrupt's application for a discharge, less costs
incurred and interest accrued after the filing of the petition and up
to the time of the entry of such judgments; (6) an award of an
industrial-accident commission, body, or officer of any State having
jurisdiction to make awards of workmen's compensation in case of
injury or death from injury, if such injury occurred prior to adjudication; (7) the right to recover damages in any action for negligence
instituted prior to and pending at the time of the filing of the petition
in bankruptcy; (8) contingent debts and contingent contractual
liabilities; or (9) claims for anticipatory breach of contracts, executory in whole or in part, including unexpired leases of real
or personal property: Provided, however, That the claim of a
landlord for damages for injury resulting from the rejection of
an unexpired lease of real estate or for damages or indemnity under
a covenant contained in such lease shall in no event be allowed
in an amount exceeding the rent reserved by the lease, without acceleration, for the year next succeeding the date of the surrender of
the premises to the landlord or the date of reentry of the landlord,
whichever first occurs, whether before or after bankruptcy, plus an
amount equal to the unpaid rent accrued, without acceleration, up to
such date: And prov.ided further, That in the case of an assignment
of any such claim for damages, the court shall, in determining the
amount thereof, examine the circumstances of the assignment and the
consideration paid or to be paid therefor, and may allow the claim
of the assignee in such amount, subject to the provisions of the foregoing proviso of this clause (9), as will be fair and equitable.
"b. In the interval after the filing of an involuntary petition and
before the appointment of a receiver or the adjudication, whichever
first occurs, a claim arising in favor of a creditor by reason of property transferred or services rendered by the creditor to the bankrupt
for the benefit of the estate shall be provable to the extent of the value
of such property or services.
"c. Notwithstanding any State law to the contrary, the rejection
of an executory contract or unexpired lease, as provided in this Act,
shall constitute a breach of such contract or lease as of the date of the
'So

873

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

in original.

Debts which may
be proved.

Provisos.

Claims of landlords
for damages.

Assignment of
claims for damages.

Claims arising between filing of involuntary petition and
adjudication, etc.

Rejection of executory contract or unexpired lease.

874
Post,
3

PUBLIC LAWS-CH. 575-JUNE 22, 1938
p

.

883

, 905,

9160,
Contingent or

n-

Ante, p.866.

Debts which have

Costs and fees.

Wages, etc.

Expense of adducing
evidence result'g
inrefusalofdischarge,
etc.

Taxes.

iProson.
o
ueamQstions
as to
amount
or legality
of
any taxes.
Debts owed to persons entitled to priority.
Rent.
Proison.

Debts contracted
while a discharge in

for,

etc.

[52 STAT.

filing of the petition in bankruptcy, or of the original petition under
chapter X, XI, XII, or XIII of this Act.
"d.

Where any contingent or unliquidated claim has been proved,

but, as provided in subdivision d of section 57 of this Act, has not
been allowed, such claim shall not be deemed provable under this Act.
"SEC. 64. DEBTS WHICH HAVE PRIoRITY.-a. The debts to have
priority, in advance of the payment of dividends to creditors, and to
be paid in full out of bankrupt estates, and the order of payment,
shall be (1) the actual and necessary costs and expenses of preserving

the estate subsequent to filing the petition; the filing fees paid by
creditors in involuntary cases; where property of the bankrupt,
transferred or concealed by him either before or after the filing of the
petition, shall have been recovered for the benefit of the estate of the
bankrupt by the efforts and at the cost and expense of one or more
creditors, the reasonable costs and expenses of such recovery; the
costs and expenses of administration, including the trustee's expenses
in opposing the bankrupt's discharge, the fees and mileage payable
to witnesses as now or hereafter provided by the laws of the United
States, and one reasonable attorney's fee, for the professional services
actually rendered, irrespective of the number of attorneys employed,
to the petitioning creditors in involuntary cases and to the bankrupt
in voluntary and involuntary cases, as the court may allow; (2)
wages, not to exceed $600 to each claimant, which have been earned
within three months before the date of the commencement of the
proceeding, due to workmen, servants, clerks, or traveling or city
salesmen on salary or commission basis, whole or part time, whether
or not selling exclusively for the bankrupt; (3) where the confirmation of an arrangement or wage-earner plan or the bankrupt's discharge has been refused, revoked, or set aside upon the objection and
through the efforts and at the cost and expense of one or more creditors, or, where through the efforts and at the cost and expense of one
or more creditors, evidence shall have been adduced resulting in the
conviction of any person of an offense under this Act, the reasonable
costs and expenses of such creditors in obtaining such refusal, revocation, or setting aside, or in adducing such evidence; (4) taxes legally
due and owing by the bankrupt to the United States or any State or
any subdivision thereof: Provided, That no order shall be made for
the payment of a tax assessed against any property of the bankrupt
in excess of the value of the interest of the bankrupt estate therein as
determined by the court: And provided further, That, in case any
question arises as to the amount or legality of any taxes, such ques-

tion shall be heard and determined by the court; and (5) debts owing
to any person, including the United States, who by the laws of the
United States in entitled to priority, and rent owing to a landlord
who is entitled to priority by applicable State law: Provided, however, That such priority for rent to a landlord shall be restricted to
the rent which is legally due and owing for the actual use and occupancy of the premises affected, and which accrued within three
months before the date of bankruptcy.
"b. Debts contracted while a discharge is in force or after the
confirmation of an arrangement shall, in the event of a revocation of
the discharge or setting aside of the confirmation, have priority and
be paid in full in advance of the payment of the debts which were
provable in the bankruptcy or arrangement proceeding, as the case
may be.
So in original.

52 STAT.]

875

75THI CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 65. DECLARATION AND PAYMENTS OF DIVIDENDS.-a. Divi-

Declaration and

payments

dends of an equal per centum shall be declared and paid on all dends.
allowed claims, except such as have priority or are secured.
"b. The first dividends shall be declared within thirty days after

of divi-

First dividends.

the first date set for the first meeting of creditors, if the money of
the estate in excess of the amount necessary to pay the debts which
have priority equals 5 per centum or more of the allowed claims
and such claims as have not been but probably will be allowed.
Dividends subsequent to the first shall be declared upon like terms

denubsequent

divi-

as the first and as often as the amount shall equal 10 per centum
or more, and upon closing the estate. Dividends may be declared
oftener and in smaller proportions, if the court shall so order: Unless
six months have expired since the first date set for the first meeting,
the first dividend, including such sum as would be required to pay
a like dividend upon such claims as probably will be allowed, shall
not include more than 50 per centum of the money of the estate in
excess of the amount necessary to pay the debts which have priority,
and the final dividend shall not be declared until three months after
the first dividend shall be declared: Provided, That after the expi- When only yodvionediviration of six months following the first date set for the first meeting dend.
only one dividend need be declared.
"c. The rights of creditors who have received dividends or in allowaid"s oed and
whose favor final dividends have been declared shall not be affected

ment, etc., of divi.

by the proof and allowance of claims subsequent to the date of such dends.
payment or declarations of dividends; but the creditors proving and
securing the allowance of such claims shall be paid dividends equal
in amount to those already received by the other creditors, if the
estate equals so much, before such other creditors are paid any
further dividends.
"d. Whenever a person shall have been adjudged a bankrupt by

oAdjudication
court
without U. by
S.

a court without the United States and also by a court of bankruptcy, and also y court o
creditors residing within the United States shall first be paid a divi- ban pt cy
dend equal to that received in the court without the United States
by other creditors before creditors who have received a dividend in
such courts shall be paid any amounts.
"e. A claimant shall not be entitled to collect from a bankrupt rgit of claitmant'
estate any greater amount than shall accrue pursuant to the provi- bankruptestate.

sions of this Act.
"SEC. 66. UNCLAIMED

MONEYS.-a. Dividends

or other moneys

Unclaimed moneys.

which remain unclaimed for sixty days after the final dividend has
been declared and distributed shall be paid by the trustee into the
court of bankruptcy; and at the same time the trustee shall file
with the clerk a list of the names and post-office addresses, as far as
known, of the persons entitled thereto, showing the respective
amounts payable to them.
"b. Dividends remaining unclaimed for one year shall, under the
direction of the court, be distributed to the creditors whose claims
have been allowed but not paid in full, and after such claims have
Po-iso.
been paid in full the balance shall be paid to the bankrupt: Provided, Unclaimed
diviThat, in case unclaimed dividends belong to minors, such minors dends belonging to
may have one year after arriving at majority to claim such dividends. minors
"SEC. 67. LIENS AND FRAUDULENT TRANSFERS.-a. (1) Every lien ient transrs

against the property of a person obtained by attachment, judgment,
levy, or other legal or equitable process or proceedings within four
months before the filing of a petition in bankruptcy or of an original
petition under chapter X, XI, XII, or XIII of this Act by or against
such person shall be deemed null and void (a) if at the time when

du

PUBLIC LAWS-CH. 575-JUNE 22, 1938

t pro

Pfs

visions,

fLiens dinoied by

[52 STAT.

such lien was obtained such person was insolvent or (b) if such lien
was sought and permitted in fraud of the provisions of this Act:
Provided, however, That if such person is not finally adjudged a
bankrupt in any proceeding under this Act and if no arrangement or
plan is proposed and confirmed, such lien shall be deemed reinstated
with the same effect as if it had not been nullified and voided.
"(2) If any lien deemed null and void under the provisions of

paragraph (1) of this subdivision a, has been dissolved by the fur-

9,o.

83

'

nishing of a bond or other obligation, the surety on which has been
indemnified directly or indirectly by the transfer of or the creation
of a lien upon any of the nonexempt property of a person before
the filing of a petition in bankruptcy or of an original petition
9)05under chapter X, XI, XII, or XIII of this Act by or against him
such indemnifying transfer or lien shall also be deemed null and
void: Provided, however, That if such person is not finally adjudged

rpistn.

a bankrupt in any proceeding under this Act, and if no arrangement
or plan is proposed and confirmed, such transfer or lien shall be
deemed reinstated with the same effect as if it had not been nullified
and voided.
Discharge of prop
"(3) The property affected by any lien deemed null and void under
the provisions of paragraphs (1) and (2) of this subdivision a shall
Parsage of property be discharged from such lien, and such property and any of the
Conveyansc

Vai

bona-flde

by

of title of

purchser.

tnuaryurisdic-

tion to hear and determine rights of parties.

Discharyge of

abil-

indemnifying property transferred to or for the benefit of a surety
shall pass to the trustee or debtor, as the case may be, except that the
court may on due notice order any such lien to be preserved for the

benefit of the estate, and the court may direct such conveyance as
may be proper or adequate to evidence the title thereto of the trustee
or debtor, as the case may be: Provided, however, That the title of
a bona-fide purchaser of such property shall be valid, but if such

title is acquired otherwise than at a judicial sale held to enforce
such lien, it shall be valid only to the extent of the present consideration paid for such property.
"(4) The court shall have summary jurisdiction of any proceed-

ing by the trustee or debtor, as the case may be. to hear and determine the rights of any parties under this subdivision a. Due notice
of any hearing in such proceeding shall be given to all parties in
interest, including the obligee of a releasing bond or other like obligation. Where an order is entered for the recovery of indemnifying property in kind or for the avoidance of an indemnifying lien,
the court, upon application of any party in interest, shall in the
same proceeding ascertain the value of such property or lien, and
if such value is less than the amount for which such property is
indemnity or than the amount of such lien, the transferee or lienholder may elect to retain such property or lien upon payment of
its value, as ascertained by the court, to the trustee or debtor, as the
case may be, within such reasonable times as the court shall fix.
"(5) The liability of a surety under a releasing bond or other like
obligation shall be discharged to the extent of the value of the

nataliditoy d

indemnifying property recovered or the indemnifying lien nullified and voided by the trustee or debtor, or, where the property is
retained pursuant to the provisions of paragraph (4) of this subdivision a, to the extent of the amount paid to the trustee or debtor.
"b. The provisions of section 60 of this Act to the contrary notwithstanding, statutory liens in favor of employees, contractors,

mechanics, landlords, or other classes of persons, and statutory liens
for taxes and debts owing to the United States or any State or subdivision thereof, created or recognized by the laws of the United
States or of any State, may be valid against the trustee, even though
arising or perfected while the debtor is insolvent and within four

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

months prior to the filing of the petition in bankruptcy or of the
original petition under chapter X, XI, XII, or XIII of this Act, by
or against him. Where by such laws such liens are required to be
perfected and arise but are not perfected before bankruptcy, they
may nevertheless be valid, if perfected within the time permitted by
and in accordance with the requirements of such laws, except that if
such laws require the liens to be perfected by the seizure of property,
they shall instead be perfected by filing notice thereof with the court.
"c. Where not enforced by sale before the filing of a petition in
bankruptcy or of an original petition under chapter X, XI, XII, or
XIII of this Act, though valid under subdivision b of this section,
statutory liens, including liens for taxes or debts owing to the United
States or to any State or subdivision thereof, on personal property
not accompanied by possession of such property, and liens whether
statutory or not, of distress for rent shall be postponed in payment
to the debts specified in clauses (1) and (2) of subdivision a of
section 64 of this Act, and, except as against other liens, such liens
for wages or for rent shall be restricted in the amount of their
payment to the same extent as provided for wages and rent respectively in subdivision a of section 64 of this Act.
"d. (1) For the purposes of, and exclusively applicable to, this
subdivision d: (a) 'Property' of a debtor shall include only his
nonexempt property; (b) 'debt' is any legal liability, whether
matured or unmatured, liquidated or unliquidated, absolute, fixed, or
contingent; (c) 'creditor' is a person in whose favor a debt exists;
(d) a person is 'insolvent' when the present fair salable value of
his property is less than the amount required to pay his debts;
and to determine whether a partnership is insolvent, there shall be
added to the partnership property the present fair salable value
of the separate property of each general partner in excess of the
amount required to pay his separate debts, and also the amount
realizable on any unpaid subscription to the partnership of each
limited partner; and (e) consideration given for the property or
obligation of a debtor is 'fair' (1) when, in good faith, in exchange
and as a fair equivalent therefor, property is transferred or an
antecedent debt is satisfied, or (2) when such property or obligation
is received in good faith to secure a present advance or antecedent
debt in an amount not disproportionately small as compared with
the value of the property or obligation obtained.
"(2) Every transfer made and every obligation incurred by a
debtor within one year prior to the filing of a petition in bankruptcy
or of an original petition under chapter X, XI, XII, or XIII of this
Act by or against him is fraudulent (a) as to creditors existing at
the time of such transfer or obligation, if made or incurred without
fair consideration by a debtor who is or will be thereby rendered
insolvent, without regard to his actual intent; or (b) as to then
existing creditors and as to other persons who become creditors
during the continuance of a business or transaction, if made or
incurred without fair consideration by a debtor who is engaged or
is about to engage in such business or transaction, for which the
property remaining in his hands is an unreasonably small capital,
without regard to his actual intent; or (c) as to then existing and
future creditors, if made or incurred without fair consideration by
a debtor who intends to incur or believes that he will incur debts
beyond his ability to pay as they mature; or (d) as to then existing
and future creditors, if made or incurred with actual intent, as
distinguished from intent presumed in law, to hinder, delay, or
defraud either existing or future creditors.

877

Postponements

in

Application
terms.

of

payment to specified
debts.

Tnsfers. etc., by
debtor within year
prior to filing of petition.

878
Within four months
prior to filing petition
to effect preference to
third party.
Post, pp. 883, 905,
916, 930.

Remedies of trustee
for avoidance cumulative.
Proviso.

Limitation.

Partnership property transfers and
obligationsincurred
within one year prior
to filing petition.

When
transfer
deemed to have been
made.

Purchasers, etc., for
fair value.

Provio.
Innocent transfers
at less than fair value.

Voidable transfers.
Ante, p. 869.
Recovery or avoidance, jurisdiction of
courts.

8et-offS and counterclaims.

Ante, p. 868.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

"(3) Every transfer made and every obligation incurred by a
debtor within four months prior to the filing of a petition in bankruptcy or of an original petition under chapter X, XI, XII, or XIII
of this Act by or against him is fraudulent, as to then existing and
future creditors, if made or incurred with intent to use the consideration, obtained for the transfer or obligation, to effect a preference
to a third person voidable under section 60 of this Act. The remedies
of the trustee for the avoidance of such transfer or obligation and
of such preference shall be cumulative: Provided, however, That
the trustee shall be entitled to only one satisfaction with respect
thereto.
"(4) Every transfer of partnership property and every partnership
obligation incurred within one year prior to the filing of a petition in
bankruptcy or of an original petition under chapter XI or XII of
this Act by or against the partnership, when the partnership is
insolvent or will be thereby rendered insolvent, is fraudulent as to
partnership creditors existing at the time of such transfer or obligation, without regard to actual intent if made or incurred (a) to a
partner, whether with or without a promise by him to pay partnership debts, or (b) to a person not a partner without fair consideration
to the partnership as distinguished from consideration to the individual partners.
"(5) For the purposes of this subdivision d, a transfer shall be
deemed to have been made at the time when it became so far perfected that no bona-fide purchaser from the debtor and no creditor
could thereafter have acquired any rights in the property so transferred superior to the rights of the transferee therein, but, if such
transfer is not so perfected prior to the filing of the petition in bankruptcy or of the original petition under chapter XI or XII of this
Act, it shall be deemed to have been made immediately before the
filing of such petition.
"(6) A transfer made or an obligation incurred by a debtor
adjudged a bankrupt under this Act, which is fraudulent under this
subdivision d against creditors of such debtor having claims provable
under this Act, shall be null and void against the trustee, except as
to a bona-fide purchaser, lienor, or obligee for a present fair equivalent value: Provided, however, That such purchaser, lienor, or
obligee, who without actual fraudulent intent has given a consideration less than fair, as defined in this subdivision d, for such transfer,
lien, or obligation, may retain the property, lien, or obligation as
security for repayment.
"(7) Nothing contained in this subdivision d shall be construed
to validate a transfer which is voidable under section 60 of this Act.
"e. For the purpose of any recovery or avoidance under this
section, where plenary proceedings are necessary, any State court
which would have had jurisdiction if bankruptcy had not intervened
and any court of bankruptcy shall have concurrent jurisdiction.
"SEC. 68. SET-OrFs AND COUNTERCLAIMS.-a. In all cases of mutual
debts or mutual credits between the estate of a bankrupt and a
creditor the account shall be stated and one debt shall be set off
against the other, and the balance only shall be allowed or paid.
"b. A set-off or counterclaim shall not be allowed in favor of any
debtor of the bankrupt which (1) is not provable against the estate
and allowable under subdivision g of section 57 of this Act; or (2)
was purchased by or transferred to him after the filing of the petition or within four months before such filing, with a view to such
use and with knowledge or notice that such bankrupt was insolvent
or had committed an act of bankruptcy.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 69. TAKING POSSESSION OF PROPERTY; RECEIVERS.-a. Whenever a petition is filed to have a person adjudged a bankrupt and an
application is made to have a receiver or a marshal take charge of
the property of the bankrupt, or any part thereof, prior to the
adjudication, the applicant shall file in the same court a bond in
such amount as the court shall fix, with such surety as the court shall
approve, conditioned to indemnify the bankrupt for such costs,
counsel fees, expenses, and damages as may be occasioned by such
seizure, taking, and detention of such property: Provided, That such

property shall be released, if the bankrupt shall file a counter-bond
in the same court in such amount as the court shall fix, with such
surety as the court shall approve, conditioned that he account for and
turn over such property or pay the value thereof in money at the
time of seizure to the trustee, in the event the adjudication is made.
"b. If the petition for adjudication be dismissed, or withdrawn
by the petitioners, the court shall fix and allow to the bankrupt, to
be paid by the obligors on such bond, the costs, counsel fees, expenses
and damages occasioned by such seizure, taking or detention of his
property, in the manner provided by section 50, subdivision n, of
this Act.
"c. The judge of any court of bankruptcy which has jurisdiction
over a bankrupt's property within its territorial limits may, in aid

879
Taking possession
of property.

Bond.

Proviso.
Release.

Expenses allowed if
petition for adjudication dismissed.

Ante, p. 864.
Ancillary receivers.

of a receiver appointed in a bankruptcy proceeding pending in any
other court of bankruptcy, appoint for cause shown one or more
ancillary receivers. The primary receiver or, if there be more than
one primary receiver, then at least one of them, shall be appointed
the ancillary receiver, or, if more than one is appointed, one of
the ancillary receivers. Ancillary receivers shall be subject to the
jurisdiction of the ancillary court, which shall determine and may
allow their costs, expenses, and compensation in like manner as
provided in the case of receivers.
"d. Upon the filing of a petition under this Act, a receiver or
trustee, not appointed under this Act, of any of the property of a
bankrupt shall be accountable to the bankruptcy court, in which the

proceeding under this Act is pending, for any action taken by him
subsequent to the filing of such bankruptcy petition, and shall file
in such bankruptcy court a sworn schedule setting forth a summary
of the property in his charge and of the liabilities of the estate,
both as of the time of and since his appointment, and a sworn
statement of his administration of the estate. Such receiver or
trustee, with knowledge of the filing of such bankruptcy proceeding,
shall not make any disbursements or take any action in the administration of such property without first obtaining authorization
therefor from the bankruptcy court.
"SEC. 7. TITLE TO PROPETrY.-a. The trustee of the estate of a
bankrupt and his successor or successors, if any, upon his or their
appointment and qualification, shall in turn be vested by operation of
law with the title of the bankrupt as of the date of the filing of the
petition in bankruptcy or of the original petition proposing an
arrangement or plan under this Act, except insofar as it is to property
which is held to be exempt, to all (1) documents relating to his
property; (2) interests in patents, patent rights, copyrights, and
trade-marks, and in applications therefor: Provided, That in case the
trustee, within thirty days after appointment and qualification, does
not notify the applicant for a patent, copyright, or trade-mark of his
election to prosecute the application to allowance or rejection, the
bankrupt may apply to the court for an order revesting him with the
title thereto, which petition shall be granted unless for cause shown

Receiver or trustee

not appointed under
this Act.

Title to property in
trustee.

Exception.

Provisos.
Patents, copyrights,

etc.

880

PUBLIC LAWS--CH. 57:5-JUNE 22, 1938

Rights not vested
in trustee.

Insurance
etc.

policies,

Executory contracts, disposition
within 60 days after
adjudication.
Proisos.
Time extension or
reduction.

[52 STAT.

by the trustee the court grants further time to the trustee for making
such election; and such applicant may, in any event, at any time
petition the court to be revested with such title in case the trustee
shall fail to prosecute such application with reasonable diligence;
and the court, upon revesting the bankrupt with such title, shall direct
the trustee to execute proper instruments of transfer to make the same
effective in law and upon the records; (3) powers which he might
have exercised for his own benefit, but not those which he might
have exercised solely for some other person; (4) property transferred
by him in fraud of his creditors; (5) property, including rights of
action, which prior to the filing of the petition he could by any means
have transferred or which might have been levied upon and sold
under judicial process against him, or otherwise seized, impounded,
or sequestered: Provided, That rights of action ex delicto for libel,
slander, injuries to the person of the bankrupt or of a relative,
whether or not resulting in death, seduction, and criminal conversation shall not vest in the trustee unless by the law of the State such
rights of action are subject to attachment, execution, garnishment,
sequestration, or other judicial process: And provided further, That
when any bankrupt, who is a natural person, shall have any insurance
policy which has a cash surrender value payable to himself, his estate,
or personal representatives, he may, within thirty days after the cash
surrender value has been ascertained and stated to the trustee by the
company issuing the same, pay or secure to the trustee the sum so
ascertained and stated, and continue to hold, own, and carry such
policy free from the claims of the creditors participating in the
distribution of his estate under the bankruptcy proceedings, otherwise
the policy shall pass to the trustee as assets; (6) rights of action
arising upon contracts, or usury, or the unlawful taking or detention
of or injury to his property; (7) contingent remainders, executory
devises and limitations, rights of entry for condition broken, rights or
possibilities of reverter, and like interests in real property, which
were nonassignable prior to bankruptcy and which, within six months
thereafter, become assignable interests or estates or give rise to powers
in the bankrupt to acquire assignable interests or estates; and (8)
property held by an assignee for the benefit of creditors appointed
under an assignment which constituted an act of bankruptcy, which
property shall, for the purposes of this Act, be deemed to be held
by the assignee as the agent of the bankrupt and shall be subject to the
summary jurisdiction of the court. All property which vests in the
bankrupt within six months after bankruptcy by bequest, devise, or
inheritance shall vest in the trustee and his successor and successors,
if any, upon his or their appointment and qualification, as of the date
when it vested in the bankrupt, and shall be free and discharged
from any transfer made or suffered by the bankrupt after bankruptcy.
All property in which the bankrupt has at the date of bankruptcy an
estate or interest by the entirety and which within six months after
bankruptcy becomes transferable in whole or in part solely by the
bankrupt shall, to the extent it becomes so transferable, vest in the
trustee and his successor and successors, if any, upon his or their
appointment and qualification, as of the date of bankruptcy. The
title of the trustee shall not be affected by the prior possession of a
receiver or other officer of any court.
"b. Within sixty days after the adjudication, the trustee shall
assume or reject any executory contract, including unexpired leases
of real property: Provided, however, That the court may for cause
shown extend or reduce such period of time. Any such contract or
lease not assumed or rejected within such time, whether or not a

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

trustee has been appointed or has qualified, shall be deemed to be
rejected. A trustee shall file, within sixty days after adjudication, a
statement under oath showing which, if any, of the contracts of the
bankrupt are executory in whole or in part, including unexpired
leases of real property, and which, if any, have been rejected by the
trustee: Provided, however, That the court may for cause shown
extend or reduce such period of time. Unless a lease of real property
shall expressly otherwise provide, a rejection of such lease or of any
covenant therein by the trustee of the lessor shall not deprive the
lessee of his estate. A general covenant or condition in a lease that it
shall not be assigned shall not be construed to prevent the trustee
from assuming the same at his election and subsequently assigning
the same; but an express covenant that an assignment by operation of
law or the bankruptcy of a specified party thereto or of either party
shall terminate the lease or give the other party an election to terminate the same shall be enforceable. A trustee who elects to assume a
contract or lease of the bankrupt and who subsequently, with the
approval of the court and upon such terms and conditions as the
court may fix after hearing upon notice to the other party to the
contract or lease, assigns such contract or lease to a third person, shall
not be liable for breaches occurring after such assignment.
"c. The trustee may have the benefit of all defenses available to the
bankrupt as against third persons, including statutes of limitation,
statutes of frauds, usury, and other personal defenses; and a waiver
of any such defense by the bankrupt after bankruptcy shall not bind
the trustee. The trustee, as to all property in the possession or under
the control of the bankrupt at the date of bankruptcy or otherwise
coming into the possession of the bankruptcy court, shall be deemed
vested as of the date of bankruptcy with all the rights, remedies, and
powers of a creditor then holding a lien thereon by legal or equitable
proceedings, whether or not such a creditor actually exists; and, as to
all other property, the trustee shall be deemed vested as of the date
of bankruptcy with all the rights, remedies, and powers of a judgment creditor then holding an execution duly returned unsatisfied,
whether or not such a creditor actually exists.
"d. After bankruptcy and either before adjudication or before a
receiver takes possession of the property of the bankrupt, whichever
first occurs"(1) A transfer of any of the property of the bankrupt, other
than real estate, made to a person acting in good faith shall be
valid against the trustee if made for a present fair equivalent
value or, if not made for a present fair equivalent value, then to
the extent of the present consideration actually paid therefor, for
which amount the transferee shall have a lien upon the property
so transferred;
"(2) A person indebted to the bankrupt or holding property
of the bankrupt may, if acting in good faith, pay such indebtedness or deliver such property, or any part thereof, to the bankrupt or upon his order, with the same effect as if the bankruptcy
were not pending;
"(3) A person having actual knowledge of such pending
bankruptcy shall be deemed not to act in good faith unless he
has reasonable cause to believe that the petition in bankruptcy
is not well founded;
"(4) The provisions of paragraphs (1) and (2) of this subdivision shall not apply where a receiver or trustee appointed
by a United States or State court is in possession of all or the
greater portion of the nonexempt property of the bankrupt;
36525°-38---56

Affidavit as to
which are executory,
etc.

Time extension or
reduction.

Assignment of leases.

Defenses and
powers of trustee.

Transfers, etc., after
bankruptcy, anil before adljultication or
before receiver takes
over prolerty.

882

PUBLIC LAWS-CH. 575--JUNE 22, 1938

Negotiability of
currency or negotiable instruments.
Designated transfer,
tetvoi dbtaagainst

[52 STAT.

"(5) A person asserting the validity of a transfer under this
subdivision shall have the burden of proof. Except as otherwise provided in this subdivision and in subdivision g of section 21 of this Act, no transfer by or in behalf of the bankrupt
after the date of bankruptcy shall be valid against the trustee:
Provided, however, That nothing in this Act shall impair the
negotiability of currency or negotiable instruments.
"e.
(1) A transfer made or suffered or obligation incurred by a
debtor adjudged a bankrupt under this Act which, under any
Federal or State law applicable thereto, is fraudulent as against or

voidable for any other reason by any creditor of the debtor, having
a claim provable under this Act, shall be null and void as against
the trustee of such debtor.
Propert y to remin

"(2)

All property of the debtor affected by any such transfer

estate.

The trustee shall reclaim and recover such property or

shall be and remain a part of his assets and estate, discharged and
released from such transfer and shall pass to, and every such transfer
or obligation shall be avoided by, the trustee for the benefit of the

Recovery.

currentjusrre
t onof
tion
courts where
plenary procedings
r.

Appraisers.

sotle

to property

Trustee vestedwith
earner plan or°t
ageset aside,
earee"an
etc.

collect its value from and avoid such transfer or obligation against
whomever may hold or have received it, except a person as to whom
the transfer or obligation specified in paragraph (1) of this subdivision e is valid under applicable Federal or State laws.
"(3) For the purpose of such recovery or of the avoidance of
such transfer or obligation, where plenary proceedings are necessary,

any State court which would have had jurisdiction if bankruptcy
had not intervened and any court of bankruptcy shall have concurrent jurisdiction.
"f.
The court shall appoint a competent and disinterested
appraiser and upon cause shown may appoint additional appraisers,
who shall appraise all the items of real and personal property
belonging to the bankrupt estate and who shall prepare and file
with the court their report thereof. Real and personal property
shall, when practicable, be sold subject to the approval of the court.
It shall not be sold otherwise than subject to the approval of the
court for less than 75 per centum of its appraised value. Whenever any sale of real or personal property of any bankrupt is made
by or through any auctioneer employed by the court, receiver, or
trustee, such auctioneer, if an individual or a partnership, shall be a
bona-fide resident and citizen of the judicial district in which the
property to be sold is situated, or, if a corporation, shall be lawfully
domesticated and authorized to transact such business in the State
in which said judicial district is located.
"g. The title to property of a bankrupt estate which has been sold,
as herein provided, shall be conveyed to the purchaser by the trustee.
"h. Whenever an arragement or wage-earner plan shall be set
a s d e o r discharge revoked, the trustee shall, upon his appointment
i
and qualification, be vested as herein provided with the title to all
of the property of the bankrupt as of the date of the final decree
setting aside the arrangement or wage-earner plan or revoking the
discharge.

Disposition of title

an arrangement, etc.

tlerks indexes;

dodcats.

i. Upon the confirmation of an arrangement or plan, or at such
later time as may be provided by the arrangement or plan, or in the
order confirming the arrangement or plan, the title to the property
dealt with shall revest in the bankrupt or debtor, or vest in such other
person as may be provided by the arrangement or plan or in the
order confirming the arrangement or plan.

"SEc. 71. CLERKS' INDEXES; CERTIrICATE

OF SEARCH; Docrs.--

The clerks of the several district courts of the United States shall prepare and keep in their respective offices complete and convenient

52 STAT.]

883

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

indexes of all proceedings and discharges under this Act heretofore
or hereafter filed in the said courts and shall, when requested so to
do, issue certificates of search certifying as to whether or not any
such proceedings or discharges have been filed. The clerks shall
be entitled to receive for such certificates the same fees as may be
allowed by law for certificates as to judgments in such courts. Such
indexes and dockets shall at all times be open to inspection and examination by all persons without any fee or charge therefor.
"SEC. 72. LI[ITATION OF COMPENSATION OF OFFICERS OF COURT.-

No referee, receiver, marshal, or trustee shall in any form or guise
receive, nor shall the court allow him, any other or further compensation for his services as required by this Act than that expressly
authorized and prescribed in this Act.
"CHAPTER X-CORPORATE REORGANIZATIONS
"ARTICLE I-CONSTRUCTION
"SEC. 101. The provisions of this chapter shall apply exclusively
to proceedings under this chapter.
"SEC. 102. The provisions of chapters I to VII, inclusive, of this
Act shall, insofar as they are not inconsistent or in conflict with the
provisions of this chapter, apply in proceedings under this chapter:
Provided, however, That section 23, subdivisions h and n of section
57, section 64, and subdivision f of section 70, shall not apply in such
proceedings unless an order shall be entered directing that bankruptcy be proceeded with pursuant to the provisions of chapters I
to VII, inclusive. For the purposes of such application, provisions
relating to 'bankrupts' shall be deemed to relate also to 'debtors', and
'bankruptcy proceedings' or 'proceedings in bankruptcy' shall be
deemed to include proceedings under this chapter. For the purposes
of such application the date of the filing of the petition in bankruptcy shall be taken to be the date of the filing of an original petition under section 128 of this Act, and the date of adjudication shall
be taken to be the date of approval of a petition filed under section
127 or 128 of this Act except where an adjudication had previously
been entered.
"ARTICLE II-DEFINITIONS
"SEC. 106. For the purposes of this chapter, unless inconsistent
with the context"(1) 'claims' shall include all claims of whatever character against
a debtor or its property, except stock, whether or not such claims are
provable under section 63 of this Act and whether secured or unsecured, liquidated or unliquidated, fixed or contingent;
"(2) 'commission' shall mean any commission or public authority
created by any law of the United States or of any State, having
regulatory jurisdiction over a public-utility corporation;
"(3) 'corporation' shall mean a corporation, as defined in this
Act, which could be adjudged a bankrupt under this Act, and any
railroad corporation excepting a railroad corporation authorized to
file a petition under section 77 of this Act;
"(4) 'creditor' shall mean the holder of any claim;
"(5) 'debtor' shall mean a corporation by or against which a
petition has been filed under this chapter;
"(6) 'debts' shall include all claims;
"(7) 'executory contracts' shall include unexpired leases of real
property;
"(8) 'indenture trustee' shall mean a trustee under a mortgage, deed
of trust, or indenture, pursuant to which there are securities outstand-

Limitation of compensation of officers of
court.

Chapter X-Corporate Reorganizations.
Construction.
Application of provisions.

Pr'oiso.

Certain sections inapplicable to proceedings; exception.
Ante, pp. 854, 866,
867, 874, 882.
Terms construed.

Post, p. 888.

Definitions.
"Claims."
Ante, p. 873.
"Commission."

"Corporation."

"Creditor."
"Debtor."
"Debts."
"Executory contracts."
"Indenture trus
tee."

884

PUBLIC LAWS-CH. 575--JUNE 22, 1938

[52 STAT.

ing, other than voting-trust certificates, constituting claims against
a debtor or claims secured by a lien upon any of its property;
"(9) 'petition' shall mean a petition filed under this chapter by a
debtor, creditors, or indenture trustee proposing that a plan of
reorganization be effected;
"(10) 'plan' shall mean a plan of reorganization proposed in a
proceeding under this chapter;
"(11) 'securities' shall include notes, bonds, and other evidences
of indebtedness, either secured or unsecured, and stock;
"(12) 'stock' shall include membership, shares, and similar interests in a debtor, certificates and other evidences of such membership,
shares or interests, and voting-trust certificates;
"(13) 'subsidiary' shall mean a corporation substantially all of
whose properties are operated under lease or operating agreement,
or the majority of whose stock having power to vote for the election
of directors, trustees, or other similar controlling bodies is owned,
directly or indirectly, through an intervening corporation or other
medium, by another parent corporation, a petition by or against which
has been approved.

"Petition."

"Plan."
"Securities."
"Stock."

"Subsidiary."

Classes affected

by

"SEC. 107. Creditors or stockholders or any class thereof shall be

deemed to be 'affected' by a plan only if their or its interest shall be
materially and adversely affected thereby. In the event of controversy, the court shall after hearing upon notice summarily determine
whether any creditor or stockholder or class is so affected.
"ARTICLE III-JURISDICTION AND POWERS OF COURT
purisdiction

and

Priornto approval of

proceing

ponpproval

tayso

of

Additional powers

ofAudddgetl pors

"SEC. 111. Where not inconsistent with the provisions of this
chapter, the court in which a petition is filed shall, for the purposes
of this chapter, have exclusive jurisdiction of the debtor and its
property, wherever located.
"SEC. 112. Prior to the approval of a petition, the jurisdiction,

powers, and duties of the court and of its officers, where not inconsistent with the provisions of this chapter, shall be the same as in a
bankruptcy proceeding before adjudication.
SEC. 113. Prior to the approval of a petition, the judge may upon
cause shown grant a temporary stay, until the petition is approved
or dismissed, of a prior pending bankruptcy, mortgllge foreclosure or
equity receivership proceeding and of any act or other proceeding to
enforce a lien against a debtor's property, and may upon cause shown
enjoin or stay until the petition is approved or dismissed the commencement or continuation of a suit against a debtor.
S. 114. Upon the approval of a petition, the jurisdiction, powers,
and duties of the court and of its officers, where not inconsistent with
the provisions of this chapter, shall be the same as in a bankruptcy
proceeding upon adjudication.
"SEC. 115. Upon the approval of a petition, the court shall have
and may, in addition to the jurisdiction, powers, and duties hereinabove and elsewhere in this chapter conferred and imposed upon it,
exercise all the powers, not inconsistent with the provisions of this
chapter, which a court of the United States would have if it had
appointed a receiver in equity of the property of the debtor on the
ground of insolvency or inability to meet its debts as they mature.

"SEC. 116. Upon the approval of a petition, the judge may, i

addition to the jurisdiction, powers, and duties hereinabove and
elsewhere in this chapter conferred and imposed upon him and
the court-

52 STAT.]

75TH

"(1) permit the rejection of executory contracts of the debtor,
except contracts in the public authority, upon notice to the parties
to such contracts and to such other parties in interest as the judge
may designate;
"(2) authorize a receiver, trustee, or debtor in possession, upon
such notice as the judge may prescribe and upon cause shown,
to issue certificates of indebtedness for cash, property, or other
consideration approved by the judge, upon such terms and conditions and with such security and priority in payment over
existing obligations, secured or unsecured, as in the particular
case may be equitable;
"(3) authorize a receiver or a trustee or a debtor in possession,
upon such notice as the judge may prescribe and upon cause
shown, to lease or sell any property of the debtor, whether real
or personal, upon such terms and conditions as the judge may
approve; and
"(4) in addition to the relief provided by section 11 of this
Act, enjoin or stay until final decree the commencement or
continuation of a suit against the debtor or its trustee or any
act or proceeding to enforce a lien upon the property of the
debtor.
"SEC. 117. The judge may, at any stage of a proceeding under this
chapter, refer the proceeding to a referee in bankruptcy to hear and
determine any or all matters not reserved to the judge by the provisions of this chapter, or he may refer the proceeding to a special
master, who may be a referee in bankruptcy, to hear and report
generally or upon specified matters. The appointment of a receiver
in a proceeding under this chapter shall be by the judge.
"SEC. 118. The judge may transfer a proceeding under this chapter
to a court of bankruptcy in any other district, regardless of the
location of the principal assets of the debtor or its principal place
of business, if the interests of the parties will be best served by
such transfer.
"SEC. 119. Whenever under this chapter the court is required or
permitted to fix a time for any purpose, the court may upon cause
shown extend such time.
"SEC. 120. Whenever notice is to be given under this chapter, the
court shall designate, if not otherwise specified hereunder, the time
within which, the persons to whom, and the form and manner in
which the notice shall be given. Any notice to be given under this
chapter may be combined, whenever feasible, with any other notice
or notices to be given under this chapter.
"SEC. 121. Where not inconsistent with the provisions of this
chapter, the jurisdiction of appellate courts shall be the same as in
a bankruptcy proceeding.
"ARTTCLF. IV-PETITION
"SEC.

885

CONG., 3D SESS.-CI. 575-JUNE 22, 1938

126. A corporation, or three or more creditors who have

Rejection of executory contracts; exception.

Issuance of certificates of indebtedness.

Sale or lease of
debtor's property.

Enjoin or stay proceedings against debtor's property.
Ante, p. 849.

Reference of proceeding to referee or
special master.

Appointment of receiver.
Transfer of proceeding to a court of bankruptcy in another district.

Time extensions.

Designation of time,
form, manner of
notices.

Appellate court jurisdiction.

Petition.

Whomayflle.

claims against a corporation or its property amounting in the aggregate to $5,000 or over, liquidated as to amount and not contingent
as to liability, or an indenture trustee where the securities outstanding under the indenture are liquidated as to amount and not contingent as to liability, may, if no other petition by or against such
corporation is pending under this chapter, file a petition under this
chapter.
"SEC. 127. A petition may be filed in a pending bankruptcy proPending proceedceeding either before or after the adjudication of a corporation. tions.

886

PUBLIC LAWS-CH. 575-JUNE 22, 1938

If no

banruptcy

I a subsidiary.

Contents of peti.

Creditors'
or petiIndenture
trustee's
tion, contents.

g.

tg dismisedand subpen
to be
served upon debtor.

A*, p. 81.

[52 STAT.

"SEC. 128. If no bankruptcy proceeding is pending, an original
petition may be filed with the court in whose territorial jurisdiction

the corporation has had its principal place of business or its principal assets for the preceding six months or for a longer portion of
the preceding six months than in any other jurisdiction.
"SEC. 129. If a corporation be a subsidiary, an original petition

by or against it may be filed either as provided in section 128 of this
Act or in the court which has approved the petition by or against
its parent corporation.
"SEC. 130. Every petition shall state"(1) that the corporation is insolvent or unable to pay its debts
as they mature;
"(2) the applicable jurisdictional facts requisite under this
chapter;
"(3) the nature of the business of the corporation;
"(4) the assets, liabilities, capital stock, and financial condition of
the corporation;
"(5) the nature of all pending proceedings affecting the property
of the corporation known to the petitioner or petitioners and the
courts in which they are pending;
"(6) the status of any plan of reorganization, readjustment, or
liquidation affecting the property of the corporation, pending either
in connection with or without any judicial proceeding"(7) the specific facts showing the need for relief under this
chapter and why adequate relief cannot be obtained under chapter
XI of this Act; and
"(8) the desire of the petitioner or petitioners that a plan be
effected.
"SEC. 131. A

creditors' or indenture trustee's petition shall, in

addition to the allegations required by section 130 of this Act,
state"(1) that the corporation was adjudged a bankrupt in a pending
proceeding in bankruptcy; or
"(2) that a receiver or trustee has been appointed for or has
taken charge of all or the greater portion of the property of the
corporation in a pending equity proceeding; or
"(3) that an indenture trustee or a mortgagee under a mortgage
is, by reason of a default, in possession of all or the greater portion
of the property of the corporation; or
"(4) that a proceeding to foreclose a mortgage or to enforce a lien
against all or the greater portion of the property of the corporation
is pending; or
(5) that the corporation has committed an act of bankruptcy
within four months prior to the filing of the petition.
SEC. 132. The filing of a petition under this chapter shall be
accompanied by payment to the clerk of a filing fee of $100 if no
bankruptcy proceeding is pending, otherwise $70. Where $100 has
been paid and an adjudication is entered under this chapter, $30
thereof shall be distributed by the clerk as in the case of a bankruptcy proceeding; but, if the proceeding under this chapter is
dismissed and no order of adjudication is entered thereunder, such
sum of $30 shall be refunded to the person paying it.
"SEC. 133. Upon the filing of a petition by creditors or an indenture
trustee, a copy thereof, together with a subpena returnable within ten
days or such longer time as the court for cause shown may have fixed,
shall be served upon the debtor, as provided in subdivision a of section
18 of this Act for service of a petition and subpena for involuntary
bankruptcy.

52 STAT.]

887

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"ARTICLE V-ANSWER

"SEC. 136. Within ten days after the service of the subpena and
of a copy of the petition, or within such further time as the court may
for cause shown allow, an answer controverting the facts alleged in
the petition may be filed by the debtor.
"SEC. 137. Prior to the first date set for the hearing provided in
section 161 of this Act, an answer controverting the allegations of
a petition by or against a debtor may be filed by any creditor or
indenture trustee or, if the debtor is not insolvent, by any stockholder
of the debtor.
"ARTICLE VI-APPROVAL OR DISMISSAL OF PETIION

"SEC. 141. Upon the filing of a petition by a debtor, the judge shall
enter an order approving the petition, if satisfied that it complies
with the requirements of this chapter and has been filed in good
faith, or dismissing it if not so satisfied.
"SEC. 142. If an answer is not filed by a debtor to a petition
against it, or if the answer filed does not controvert any material
allegation of the petition, the judge shall enter an order approving
the petition if satisfied that it complies with the requirements of this
chapter and has been filed in good faith, or dismissing it if not so
satisfied.
"SEC. 143. If the answer of a debtor shall controvert any of the
material allegations of the petition, the judge shall, as soon as may
be, determine, without the intervention of a jury, the issues presented
by the pleadings and enter an order approving the petition, if satisfied that it complies with the requirements of this chapter and has
been filed in good faith and that the material allegations are sustained by the proofs, or dismissing it if not so satisfied.
"SEC. 144. If an answer filed by any creditor, indenture trustee, or
stockholder shall controvert any of the material allegations of the
petition, the judge shall, as soon as may be, determine, without the
intervention of a jury, the issues presented by the pleadings and enter
an order approving the petition, if satisfied that it complies with the
requirements of this chapter and has been filed in good faith and that
the material allegations are sustained by the proofs, or dismissing it
if not so satisfied.
"SEC. 145. If any issue raised in an answer filed under section 136 or
137 of this Act has, after hearing upon notice to the debtor, creditors,
indenture trustees, and stockholders entitled to controvert the allegations of the petition, already been tried and finally determined under
the provisions of section 143 or 144 of this Act, such final determination
shall be conclusive for all purposes under this chapter.
"SEC. 146. Without limiting the generality of the meaning of the
term 'good faith', a petition shall be deemed not to be filed in good
faith if"(1) the petitioning creditors have acquired their claims for the
purpose of filing the petition; or
"(2) adequate relief would be obtainable by a debtor's petition
under the provisions of chapter XI of this Act; or
"(3) it is unreasonable to expect that a plan of reorganization
can be effected; or
"(4) a prior proceeding is pending in any court and it appears
that the interests of creditors and stockholders would be best subserved in such prior proceeding.

Answer.
Period allowed.

Filing of answer

controverting

tions.
Post, p. 889.

allega-

Approval or dismissal of petition.

Conditions

upon

which judge may ap-

prove or dismiss debtor's petition.
Action if no answer

is filed by debtor, etc.

If debtor controverts material allegations.

Ifcreditor, etc., con-

troverts material allegations.

Conclusi veness of
final determination of

Issues.

Petitions deemed
not led in good faith.

Post, p. 905.

888
Petitions improperly filed under this
chapter, disposition.
Post, p. 905.

Approving order as
stay of pending bankruptcy, etc., proceeding.

Determination of
jurisdiction.

Proceedings subse-

quent to approval of
petition.
Trustees,
ppointdebtedness is $250,000
orover.

Ate, p. 860.
I less than $25,000.

Additional trustee,
appointment.
Post, p. 892.

trusite'satene
Proviso.
Exception.

Persons not deemed

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

"SEC. 147. A petition filed under this chapter improperly because
adequate relief can be obtained by the debtor under chapter XI of
this Act may, upon the application of the debtor, be amended to comply with the requirements of chapter XI for the filing of a debtor's
petition, and shall thereafter for the purposes of chapter XI be
deemed to have been originally filed thereunder.
"SEC. 148. Until otherwise ordered by the judge, an order approving
a petition shall operate as a stay of a prior pending bankruptcy,
mortgage foreclosure, or equity receivership proceeding, and of any
act or other proceeding to enforce a lien against the debtor's
property.
"SEC. 149. An order, which has become final, approving a petition
filed under this chapter shall be a conclusive determination of the
jurisdiction of the court.
"ARTICLE VII-PROCEEDINGS SUBSEQUENT TO APPROVAL OF PETITION
"SEC. 156. Upon the approval of a petition, the judge shall, if the
indebtedness of a debtor, liquidated as to amount and not contingent
as to liability, is $250,000 or over, appoint one or more trustees. Any

trustee appointed under this chapter shall be disinterested and shall
have the qualifications prescribed in section 45 of this Act, except
that the trustee need not reside or have his office within the district.
If such indebtedness is less than $250,000, the judge may appoint one
or more such trustees or he may continue the debtor in possession.
In any case where a trustee is appointed the judge may, for the
purposes specified in section 189 of this Act, appoint as an additional
i
trustee a person who is a director, officer, or employee of the debtor.
"SEC. 157. An attorney appointed to represent a trustee under
this chapter shall also be a disinterested person: Provided, however,
That for any specified purposes other than to represent a trustee
in conducting the proceeding under this chapter the trustee may,
with the approval of the judge, employ an attorney who is not
disinterested.
"SEC. 158. A

person shall not be deemed disinterested, for the

purposes of section 156 and section 157 of this Act, if"(1) he is a creditor or stockholder of the debtor; or
"(2) he is or was an underwriter of any of the outstanding

securities of the debtor or within five years prior to the date of
the filing of the petition was the underwriter of any securities of
the debtor; or
"(3) he is, or was within two years prior to the date of the filing
of the petition, a director, officer, or employee of the debtor or any
such underwriter, or an attorney for the debtor or such underwriter;
or

Whereindebtedness
of debtor less than

"(4) it appears that he has, by reason of any other direct or
indirect relationship to, connection with, or interest in the debtor
or such underwriter, or for any reason an interest materially adverse
to the interests of any class of creditors or stockholders.
"SEC. 159. Where the indebtedness of a debtor is less than $250,000,

Trustees, appointment of additional or

debtor has been continued in possession, terminate its possession and
appoint a trustee.
"SEC. 160. In any case, the judge at any time, without or upon

$250,000, powers of the judge may at any time terminate the appointment of a trustee
judge.
and restore the debtor to the possession of its property, or, if the

substitute; removal.

cause shown, may appoint additional trustees or remove trustees and

appoint substitute trustees.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 161. The judge shall fix a time of hearing, to be held not
less than thirty days and not more than sixty days after the approval
of the petition, of which hearing at least thirty days' notice shall
be given by mail to the creditors, stockholders, indenture trustees,
the Securities and Exchange Commission and such other persons as
the judge may designate, and, if directed by the judge, by publication in such newspaper or newspapers of general circulation as the
judge may designate.
"SEC. 162. At the hearing required by section 161 of this Act,

889
Hearing.

Function of hearing,

or at any adjournment thereof, or, upon application, at any other
time, the judge may hear objections to the continuance of the debtor
in possession, or to the retention in office of a trustee upon the
ground that he is not qualified or not disinterested as provided in
section 158 of this Act.
"SEC. 163. Upon the approval of a petition, where the debtor

Filing of schedules.

is continued in possession, the debtor shall, at the expense of the
estate, prepare, make oath to, and file in court, within such time
as the court shall fix"(1) a schedule of its property, showing the location, quantity,
and money value thereof;
"(2) a schedule of its creditors of each class, showing the amounts
and character of their claims and securities and, so far as known,
the name and post-office address or place of business of each creditor;
and
"(3) a schedule of its stockholders of each class showing the
number and kind of shares registered in the name of each stockholder, and the last-known post-office address or place of business
of each stockholder.
"SEC. 164. Upon the approval of a petition, where a debtor is not

continued in possession, the court shall fix a time within which the
trustee shall prepare and file in court a list of the creditors of each
class, showing the amounts and character of their claims and securities
and, so far as known, the name and the post-office address or place of
business of each creditor; and a list of the debtor's stockholders of
each class, showing the number and kind of shares registered in the
name of each stockholder and the last-known post-ofice address or
place of business of each stockholder.
"SEC. 165. If in any case it appears that a person, other than the
debtor or its trustee, has in his possession or under his control a list
of security holders of the debtor or information in respect to their
names, addresses, or the securities held by any of them, and such list
or information is necessary in order to disclose the names and
addresses of the beneficial owners of such securities, or to prepare or
complete the schedules required to be filed under section 163 of this
Act or the lists required to be filed under section 164 of this Act, the
court shall direct such person, after a hearing upon notice to him, to
produce such list or a true and correct copy thereof, or to furnish such
information, or to permit the inspection or use thereof, as may be
deemed by the court necessary for the foregoing purposes.
"SEC. 1(6. The court may, upon cause shown, direct the impounding of the schedules, lists, copies, or information filed under sections

Listofcreditorsand

o

0
dtebtkor

Duty
ists,

of other per-

ottc.o

holder who acquired his claim or stock within three months preceding
the filing of the petition under this chapter or during the pendency
of the proceeding.

such

se of lists, etc., by
creditor, or
or
stockholder.
trustee,

163, 164, and 165 of this Act, but shall permit their inspection or use
by the trustee, any indenture trustee or any creditor or stockholder
upon such terms as the court may prescribe: Provided, That the
court may refuse to permit such inspection by any creditor or stock-

th e

Pr of
pe
sio to ospect.r

890

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Duties tand

unc-

Examination

n

tions of trustee.
Investigation of
debtorsliabiitiesete.

[52 STAT.

"SEC. 167. The trustee upon his appointment and qualification"(1) shall, if the judge shall so direct, forthwith investigate
the acts, conduct, property, liabilities, and financial condition of the
debtor, the operation of its business and the desirability of the continuance thereof, and any other matter relevant to the proceeding
or to the formulation of a plan, and report thereon to the judge;

ofce

etc.

"(2) may, if the judge shall so direct, examine the directors and
officers of the debtor and any other witnesses concerning the foregoing
matters or any of them;

frautto

judge of
ssistance

to

trustee.

"(3)

shall report to the judge any facts ascertained by him per-

taining to fraud, misconduct, mismanagement and irregularities, and
any causes of action available to the estate;
"(4) may, subject to the approval of the judge, employ such person

or persons as the judge may deem necessary for the purpose of
assisting the trustee in performing the duties imposed upon him under
Preparationofstate-

ment of investigation
of property,etc.

bmission of suggestions by creditors,
etc.

this chapter;
"(5) shall, at the earliest date practicable, prepare and submit a

brief statement of his investigation of the property, liabilities, and
financial condition of the debtor, the operation of its business and the
desirability of the continuance thereof, in such form and manner
as the judge may direct, to the creditors, stockholders, indenture
trustees, the Securities and Exchange Commission, and such other
persons as the judge may designate; and

(6) shall give notice to the creditors and stockholders that they
may submit to him suggestions for the formulation of a plan, or
proposals in the form of plans. within a time therein named.
"SEC. 168. If a debtor is continued in possession, the judge may

tions.

at any time appoint a disinterested person as examiner to prepare
and file a plan and to perform the duties imposed upon a trustee
under paragraphs (1) to (5), inclusive, of section 167 of this Act, or
to perform any of such duties.

judge for preparation
and filing of plan by

"SEc. 169. Where a trustee has been appointed the judge shall fix
a time within which the trustee shall prepare and file a plan, or a
report of his reasons why a plan cannot be effected, and shall fix a

subsequent time for a hearing on such plan or report and for the
consideration of any objections which may be made or of such amendments or plans as may be proposed by the debtor or by any creditor
or stockholder.
Poris ohtinuedebn
possession.

"SEC. 170. Where a debtor is continued in possession, a plan or
plans may be filed, within a time fixed by the judge" 1) by the debtor;
" 2) by any creditor or indenture trustee;
"(3) by any stockholder, if the debtor is not found to be insolvent;
"(Hearing4)
by the examiner, if so directed by the judge. The judge

shall ix a subsequent time for a hearing on such plans and for the
consideration of any objections or amendments thereto.
Notice of hearing to

"SEO. 171. Notice of the time of any hearing, as provided in section 169 or section 170 of this Act, shall be given to the debtor, the

creditors and stockholders, the indenture trustees, the Secretary of
the Treasury, the Securities and Exchange Commission, and such
other persons as the court may designate. The judge may, upon
ctrustee, indenture trust, or
the application of the trustee, any creditor,
Examination

and

report on plans by

stockholder, advance the time of such hearing.

SE. 172. After the hearing, as provided in section 169 or section

sehng~es omamEonx- 170 of this Act, and before the approval of any plan, as provided
in section 174 of this Act, the judge may, if the scheduled indebt-

edness of the debtor does not exceed $3,000,000, and shall, if
such indebtedness exceeds $3,000,000, submit to the Securities and
Exchange Commission for examination and report the plan or plans

52 STAT.]

891

75TH CONG., 3D SESS.-CH. 575--JUNE 22, 1938

which the judge regards as worthy of consideration.
shall be advisory only.

Such report

"SEO. 173. The judge shall not enter an order approving a plan

submitted to the Securities and Exchange Commission until after
the Securities and Exchange Commission has filed its report thereon
or has notified the judge that it will not file a report, or until the
expiration of such reasonable time for the filing of such report as the
judge has fixed, whichever first occurs.
"SEC. 174. After the hearing, as provided in section 169 or section

Report, etBo
by
approval ofplan.

Procedure

170 of this Act, and, if a plan has been submitted to the Securities
and Exchange Commission, as provided in section 172 of this Act,
then after the filing of the report or notice that it will not be filed,
or after the expiration of the time for its filing, whichever first
occurs, the judge shall enter an order approving the plan or plans
which in his opinion comply with the provisions of section 216 of
this Act, and which are fair and equitable, and feasible, and shall
fix a time within which the creditors and stockholders affected

Pot P

for ap -

*895.

thereby may accept the same.
"SEC. 175. Upon the approval of a plan by the judge, the trustee creditors and stock-

tf approved
or the debtor in possession shall transmit, by mail or otherwise, to holders
all creditors and stockholders who are affected by any such plan"(1) the plan or plans so approved, together with a summary
thereof approved by the judge;
"(2) the opinion of the judge, if any, approving the plan, or
plans, or a summary thereof approved by the judge;
"(3) the report, if any, filed in the proceeding by the Securities
and Exchange Commission, as provided in section 172 of this Act,
or a summary thereof prepared by the Securities and Exchange
Commission; and
"(4) such other matters as the judge may deem necessary or
desirable for the information of creditors and stockholders.
"SEC. 176. No person shall, without the consent of the court, solicit septancesof a c
any acceptance, conditional or unconditional, of any plan, or any
authority, conditional or unconditional, to accept any plan, whether
by proxy, deposit, power of attorney or otherwise, until after the
entry of an order approving such plan and the transmittal thereof
to the creditors and stockholders, as provided in section 175 of this
Act; and any such authority or acceptance given, procured, or received
by reason of a solicitation prior to such approval and transmittal
shall be invalid, unless such consent of the court has been so obtained.
"SEC. 177. In case a debtor is a public-utility corporation, subject debtPrrsal ublutilto the jurisdiction of a commission having regulatory jurisdiction Ity corporation.
over the debtor, a plan shall not be approved, as provided in section
174 of this Act, until"(1 it shall have been submitted to each such commission;
"(2) an opportunity shall have been afforded each such commission to suggest amendments or offer objections to the plan; and
"(3) the judge shall have considered such amendments or objections at a hearing at which such commission may be heard.

"SEC. 178. In case a debtor is a public utility corporation, wholly
Intrastate public
intrastate, subject to the jurisdiction of a State commission having planbyioms-

regulatory jurisdiction over such debtor, aa plan
la shall
sa
nott be pproved,
as provided in section 174 of this Act, unless such State commission
shall have first certified its approval of such plan as to the public
interest therein and the fairness thereof. Upon its failure to certify
its approval or disapproval within thirty days, or such further time
as the court may prescribe, after the submission of the plan to it, as
provided in section 177 of this Act, the public interest shall, for the

o

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Hearing for consideration of confirmation of plan after
acceptance.

Order of approval
not to affect right to
object to confirmation.

Title, rights, and
powers of trustees and
debtors in possession.

[52 STAT.

purposes of such approval and of the confirmation of the plan, not
be deemed to be affected by the plan.
"SEC. 179. After a plan has been accepted in writing, filed in
court, by or on behalf of creditors holding two-thirds in amount of
the claims filed and allowed of each class, and, if the debtor has not
been found to be insolvent, by or on behalf of stockholders holding
the majority of stock, of which proofs have been filed and allowed,
of each class, exclusive of creditors or stockholders or of any class
of them who are not affected by the plan or whose claims or stock
are disqualified pursuant to section 203 of this Act, or for whom
payment or protection has been provided as prescribed in paragraphs
(7) and (8) of section 216 of this Act, the judge shall fix a hearing,
upon notice to the debtor, creditors, stockholders, indenture trustees,
the Secretary of the Treasury, the Securities and Exchange Commission, and such other persons as the judge may designate, for the
consideration of the confirmation of the plan and of such objections
as may be made to the confirmation.
"SEC. 180. The order of the judge approving a plan, as provided
in section 174 of this Act, shall not affect the right of the debtor, a
creditor, indenture trustee, or stockholder to object to the confirmation of the plan.
"ARBTCL E VIII--TrLE, RIGHTS, AND POWERS OF TUsSTEES

AND

DEBTORS IN POSSESSION

"SEC. 186. A trustee, upon his appointment and qualification, shall

Title of trustee.

be vested with such title as a trustee appointed under section 44 of
this Act would have.
dutiegsof truste

a

Exerise of powers

"SEO.

187. Where not inconsistent with the provisions of this

and, if

authorized by the judge, shall have and may exercise such

chapter, a trustee, upon his appointment and qualification, shall be
vested with the same rights, be subject to the same duties, and exercise
the same powers as a trustee appointed under section 44 of this Act,
additional rights and powers as a receiver in equity would have if
appointed by a court of the United States for the property of the
debtor.

aitle,
rightosdutie,
and
powers
of debtor
contnued in possession.

Operation
of debtor's
business and
management of property.

Reports and sum-

"SEC. 188. A debtor continued in possession of its property shall
have all the title, be vested with all the rights, be subject to all the

duties, and exercise all the powers of a trustee appointed under this
chapter, subject, however, at all times to the control of the judge
and to such limitations, restrictions, terms, and conditions as the
judge may from time to time prescribe.
"SEC.
189. A trustee or debtor in possession, upon authorization
,.i

by the judge, shall operate the business and manage the property
of the debtor during such period, limited or indefimte, as the judge
may from time to time fix, and during such operation or management shall file reports thereof with the court at such intervals as the
court may designate.
"SEC. 190. The reports of the trustee or debtor in possession shall

be in such form and contain such information as the court may
prescribe and shall at all times be open to the examination of any
party in interest. The court shall direct copies or summaries of
annual reports, and may direct copies or summaries of other reports,
to be mailed to the creditors, stockholders, and indenture trustees,
and may also direct the publication of summaries of any such reports
in such newspaper or newspapers of general circulation as the court
may designate. The Securities and Exchange Commission may
recommend the form of such reports and summaries.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 191. A trustee or debtor in possession may employ officers
of the debtor at rates of compensation to be approved by the court.
No person shall become an officer or director of the debtor, to fill a
vacancy or otherwise, without the prior approval of the court.
"ARTICLE

IX--CREDITORS

AND STOCKHOLDERS

893
Officers of the
debtor, employment.

Creditorsandstockholders.

"SEC. 196. After the approval of the petition the judge shall preMannerand time of
and allowance of
scribe the manner in which and fix a time within which the proofs filing
claims and interests.
of claim of creditors and of the interests of stockholders may be
filed and allowed. Objections by any party in interest to the allowDetermination
of
ance of any such claims or interests shall be heard and summarily o ect ons
determined by the court.
"SEC. 197. For the purposes of the plan and its acceptance, the Divisionofcreditors
stockholders into
judge shall fix the division of creditors and stockholders into classes and
classes.
according to the nature of their respective claims and stock. For
the purposes of such classification, the judge shall, if necessary,
upon the application of the trustee, the debtor, any creditor, or an
indenture trustee, fix a hearing upon notice to the holders of secured
claims, the debtor, the trustee, and such other persons as the judge
may designate, to determine summarily the value of the security and
classify as unsecured the amount in excess of such value.
"SEC. 198. An indenture trustee may file claims for all holders,

known or unknown, of securities issued pursuant to the instrument
under which he is trustee, who have not filed claims: Provided however, That in computing the majority necessary for the acceptance
of the plan only the claims filed by the holders thereof, and allowed,
shall be included.
"SEC. 199. If the United States is a secured or unsecured creditor
or stockholder of a debtor, the claims or stock thereof shall be deemed

Filing

of claims

m den tu re tr st es

by

u e

P"O' inde

Where
United
States is a secured or
unsecred creditor,
etc.

to be affected by a plan under this chapter, and the Secretary of the
Treasury is hereby authorized to accept or reject a plan in respect
of the claims or stock of the United States. If, in any proceeding
under this chapter, the United States is a secured or unsecured creditor on claims for taxes or customs duties (whether or not the
United States has any other interest in, or claim against the debtor,
as secured or unsecured creditor or stockholder), no plan which
does not provide for the payment thereof shall be confirmed by the
judge except upon the acceptance of a lesser amount by the Secretary of the Treasury certified to the court: Provitled, That if the
Pr-oleo.
·Presumptlon of
of apSecretary of the Treasury shall fail to accept or reject a plan for proval.
more than ninety days after receipt of written notice so to do
from the court to whclh the plan has been proposed, accompanied
by a certified copy of the plan, his consent shall be conclusively presumed.
"SEC. 200. Where not inconsistent with the provisions of this chapRights, duties, etc.,
ter, the
creditors before and
ter,
the rights,
rights, duties,
duties, and
and liabilities
liabilities of
of cretors and of all other of
after approval ofpetipersons with respect to the property of the debtor shall be the same, tion
before the approval of the petition, as in a bankruptcy proceeding
before adjudication and, upon the approval of the petition, as in a
bankruptcy proceeding upon adjudication.
"SEC. 201. All claims arising after the filing of a petition under

this chapter and before the qualification of a receiver or trustee or
before the petition is approved and the debtor continued in possession, whichever first occurs, shall be provable.
"SEC. 202. In case an executory contract shall be rejected pursuant
to the provisions of a plan or to the permission of the court given

in a proceeding under this chapter, or shall have been rejected by

Proving of claims
arising after filing of
petition, etc.

Rejected executory

rts stnuretus of

894

Limitation on claim
of landlord.

Proviso.
Assignee of future
rent claim, damages.

If acceptance or
failure to accept plan
is not in good faith.

Fixing of time for
release of claims, etc.
Post, p. 898.

Unclaimed securities, etc., disposition.

Hearings.
Labor unions, etc.

Intervention by
parties in interest.

By Securities and
Exchange Commission.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

a trustee or receiver in bankruptcy or receiver in equity in a prior
pending proceeding, any person injured by such rejection shall, for
the purposes of this chapter and of the plan, its acceptance and
confirmation, be deemed a creditor. The claim of the landlord for
injury resulting from the rejection of an unexpired lease of real
estate or for damages or indemnity under a covenant contained in
such lease shall be provable, but shall be limited to an amount not
to exceed the rent, without acceleration, reserved by such lease for
the three years next succeeding the date of the surrender of the
premises to the landlord or the date of reentry of the landlord, whichever first occurs, whether before or after the filing of the petition
plus unpaid accrued rent, without acceleration, up to such date of
surrender or reentry: Provided, That the court shall scrutinize the
circumstances of an assignment of a future rent claim and the amount
of the consideration paid for such assignment in determining the
amount of damages allowed the assignee thereof.
"SEC. 203. If the acceptance or failure to accept a plan by the
holder of any claim or stock is not in good faith, in the light of or
irrespective of the time of acquisition thereof, the judge may, after
hearing upon notice, direct that such claim or stock be disqualified
for the purpose of determining the requisite majority for the acceptance of a plan.
"SEC. 204. Upon distribution, as provided in section 224 of this
Act, the judge may, upon notice to all persons affected, fix a time, to
expire not sooner than five years after the final decree closing the
estate, within which, as provided in the plan or final decree"(1) the creditors, other than holders of securities, shall file, assign,
transfer, or release their claims; and
"(2) the holders of securities shall present or surrender their securities. After such time no such claim or stock shall participate in the
distribution under the plan.
"SEC. 205. The securities or cash remaining unclaimed at the expiration of the time fixed as provided in section 204 of this Act, or of any
extension thereof, shall become the property of the debtor or of the
new corporation acquiring the assets of the debtor under the plan,
as the case may be, free and clear of any and all claims and interests.
"SEC. 206. The debtor, the indenture trustees, and any creditor or
stockholder of the debtor shall have the right to be heard on all
matters arising in a proceeding under this chapter. The judge may,
for cause shown, permit a labor union or employees' association,
representative of employees of the debtor, to be heard on the economic soundness of the plan affecting the interests of the employees.
"SEC. 207. The judge may for cause shown permit a party in interest
to intervene generally or with respect to any specified matter. Except
where otherwise provided in this chapter, the judge may from time
to time enter orders designating the matters in respect to which the
persons to whom, and the form and manner in which notice shal be
given.
"SEC. 208. The Securities and Exchange Commission shall, if
requested by the judge, and may, upon its own motion if approved
by the judge, file a notice of its appearance in a proceeding under
this chapter. Upon the filing of such a notice, the Commission shall
be deemed to be a party in interest, with the right to be heard on all
matters arising in such proceeding, and shall be deemed to have
intervened in respect of all matters in such proceeding with the same
force and effect as if a petition for that purpose had been allowed by
the judge; but the Commission may not appeal or file any petition
for appeal in any such proceeding.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

895

"SEC. 209. Any creditor or stockholder may in a proceeding under

Right of creditor or

this chapter act in person, by an attorney at law, or by a duly authorized agent or committee.

stockholder to actt by
by
attorney, etc

"SEC. 210. An attorney for creditors or stockholders shall not be

Information

heard unless he has first filed with the court a statement setting
forth the names and addresses of such creditors or stockholders, the
nature and amounts of their claims or stock, and the time of acquisition thereof, except as to claims or stock alleged to have been
acquired more than one year prior to the filing of the petition.
"SEC. 211. Every person or committee, representing more than

Statements by ceror indePtureetstt

twelve creditors or stockholders, and every indenture trustee, who

appears in the proceeding shall file with the court a statement, under
oath, which shall include"(1) a copy of the instrument, if any, whereby such person, committee, or indenture trustee is empowered to act on behalf of creditors or stockholders;
"(2) a recital of the pertinent facts and circumstances in connection with the employment of such person or indenture trustee,
and, in the case of a committee, the name or names of the person
or persons at whose instance, directly or indirectly such employment was arranged or the committee was organized or formed or
agreed to act;
"(3) with reference to the time of the employment of such person, or the organization or formation of such committee, or the
appearance in the proceeding of any indenture trustee, a showing
of the amounts of claims or stock owned by such person, the members of such committee or such indenture trustee, the times when
acquired, the amounts paid therefor, and any sales or other disposition thereof; and
"(4) a showing of the claims or stock represented by such person or committee and the respective amounts thereof, with an averment that each holder of such claims or stock acquired them at least
one year before the filing of the petition or with a showing of the
times of acquisition thereof.
"SEC. 212. The judge may examine and disregard any provision
of a deposit agreement, proxy, power or warrant of attorney, trust
mortgage, trust indenture, or deed of trust, or committee or other
authorization, by the terms of which an agent, attorney, indenture
trustee, or committee purports to represent any creditor or stockholder, may enforce an accounting thereunder, may restrain the
exercise of any power which he finds to be unfair or not consistent
with public policy and may limit any claim or stock acquired by
such person or committee in contemplation or in the course of the
proceeding under this chapter to the actual consideration paid
therefor.
"SEC. 213. Without limiting the powers of the judge under sec-

co

"ARrTIC

X-PROVISIONS OF PLAN

"SEc. 216. A plan of reorganization under this chapter"(1) shall include in respect to creditors generally or some class
of them, secured or unsecured, and may include in respect to stock-

ntents.

Powers ofjudge.

Agents, etc., of credeor takireentspr
re

tion 212 of this Act, an agent, indenture trustee, or committee, pur-

porting to represent creditors or stockholders, shall not be heard or
allowed to intervene in a proceeding under this chapter until such
person or persons shall have satisfies the court that they have complied with all applicable laws regulating the activities and personnel of such persons.

to be

heys.

p

ro

edi

ing.

Provisions of plan.
Contents.
Rights of creditors,
etc.

PUBLIC LAWS--C.

Debtor's property.
Payment of administration costs and
other allowances.
Rejection of executory contracts.
Claims to be paid in
cash in full.
Creditors, etc., not
affected.

Protection of nonassenting class of
creditors.

Nonassenting class
of stockholders.

Proviso.
If debtor insolvent.
Long-term
edness.

indebt-

Provisions for execution of plan.

575-JUNE 22, 1938

[52 STAT.

holders generally or some class of them, provisions altering or modifying their rights, either through the issuance of new securities of
any character or otherwise;
"(2) may deal with all or any part of the property of the debtor;
"(3) shall provide for the payment of all costs and expenses of
administration and other allowances which may be approved or
made by the judge;
" (4) may provide for the rejection of any executory contract except
contracts in the public authority;
"(5) shall specify what claims, if any, are to be paid in cash in
full;
"(6) shall specify the creditors or stockholders or any class of
them not to be affected by the plan and the provisions, if any, with
respect to them;
"(7) shall provide for any class of creditors which is affected by
and does not accept the plan by the two-thirds majority in amount
required under this chapter, adequate protection for the realization
by them of the value of their claims against the property dealt with
by the plan and affected by such claims, either as provided in the
plan or in the order confirming the plan, (a) by the transfer or
sale, or by the retention by the debtor, of such property subject to
such claims; or (b) by a sale of such property free of such claims,
at not less than a fair upset price, and the transfer of such claims
to the proceeds of such sale; or (c) by appraisal and payment in
cash of the value of such claims; or (d) by such method as will,
under and consistent with the circumstances of the particular case,
equitably and fairly provide such protection;
"(8) shall provide for any class of stockholders which is affected
by the plan and does not accept the plan by the majority of the stock
required under this chapter, adequate protection for the realization
by them of the value of their equity, if any, in the property of the
debtor dealt with by the plan, either as provided in the plan or in
the order confirming the plan, (a) by the sale of such property at
not less than a fair upset price; or (b) by appraisal and payment
in cash of the value of their stock; or (c) by such method as will,
under and consistent with the circumstances of the particular case,
equitably and fairly provide such protection: Provided, however,
That such protection shall not be required if the judge shall determine that the debtor is insolvent;
"(9) may include, where any indebtedness is created or extended
under the plan for a period of more than five years, provisions for
the retirement of such indebtedness by stated or determinable payments out of a sinking fund or otherwise, (a) if secured, within
the expected useful life of the security therefor, or (b) if unsecured,
or if the expected useful life of the security is not fairly ascertainable, then within a specified reasonable time, not to exceed forty
years;
"(10) shall provide adequate means for the execution of the plan,
which may include: the retention by the debtor of all or any part of
its property; the sale or transfer of all or any part of its property
to one or more other corporations theretofore organized or thereafter to be organized; the merger or consolidation of the debtor with
one or more other corporations; the sale of all or any part of its
property, either subject to or free from any lien, at not less than a
fair upset price and the distribution of all or any assets, or the
proceeds derived from the sale thereof, among those having an
interest therein; the satisfaction or modification of liens; the cancelation or modification of indentures or of other similar instruments; the curing or waiver of defaults; the extension of maturity

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

dates and changes in interest rates and other terms of outstanding
securities; the amendment of the charter of the debtor; the issuance
of securities of the debtor or such other corporations for cash, for
property, in exchange for existing securities, in satisfaction of claims
or stock or for other appropriate purposes;
"(11) shall include provisions which are equitable, compatible
with the interests of creditors and stockholders, and consistent with
public policy, with respect to the manner of selection of the persons
who are to be directors, officers, or voting trustees, if any, upon the
consummation of the plan, and their respective successors;
"(12) shall provide for the inclusion in the charter of the debtor,
or any corporation organized or to be organized for the purpose of
carrying out the plan, of"(a) provisions prohibiting the debtor or such corporation
from issuing non-voting stock, and providing, as to the several
classes of securities of the debtor or of such corporation possessing
voting power, for the fair and equitable distribution of such
power among such classes, including, in the case of any class of
stock having a preference over other stock with respect to dividends, adequate provisions for the election of directors representing such preferred class in the event of default in the payment of such dividends; and
"(b) (1) provisions which are fair and equitable and in accordance with sound business and accounting practice, with respect
to the terms, position, rights, and privileges of the several classes
of securities of the debtor or of such corporation, including, without limiting the generality of the foregoing, provisions with
respect to the issuance, acquisition, purchase, retirement or
redemption of any such securities, and the declaration and payment of dividends thereon; and (2) in the case of a debtor whose
indebtedness, liquidated as to amount and not contingent as to
liability, is $250,000 or over, provisions with respect to the
making, not less than once annually, of periodic reports to security holders which shall include profit and loss statements and
balance sheets prepared in accordance with sound business and
accounting practice;
"(13) may include provisions for the settlement or adjustment of
claims belonging to the debtor or to the estate; and shall provide, as
to such claims not settled or adjusted in the plan, for their retention
and enforcement by the trustee or, if the debtor has been continued in
possession, by an examiner appointed for that purpose; and
"(14) may include any other appropriate provisions not inconsistent with the provisions of this chapter.
"ARTICLE XI-CONFIRMIATION AND CONSUMMATION OF PLAN

"SEC. 221. The judge shall confirm a plan if satisfied that"(1) the provisions of article VII, section 199, and article X of this
chapter have been complied with;
"(2) the plan is fair and equitable, and feasible;
"(3) the proposal of the plan and its acceptance are in good
faith and have not been made or procured by means or promises
forbidden by this Act;
"(4) all payments made or promised by the debtor or by a corporatlon issuing securities or acquiring property under the plan
or by any other person, for services and for costs and expenses in,
or in connection with, the proceeding or in connection with the plan
and incident to the reorganization, have been fully disclosed to the
judge and are reasonable or, if to be fixed after confirmation of the
plan, will be subject to the approval of the judge; and
36525°-38---57

897

Manner of selecting
officers, etc. upon consummation of plan.

Provisions to be ineluded in charter.

Non-voting stock
prohibited.

Terms, position,
rights, etc., of securities.

Periodic reports.

Settlement, etc., of
claims of debtor or
estate; provision for
claims not sottled.

Inclusion ofotherappropriate provisions.

Confirmation and
consummation of
plan.
Conditions.
Ante, pp. 888, 893,
S95.

898

Alterations ormodifications.

Presumption of acceptance of alterations, etc.

Action to be taken
upon confirmation of
plan.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

"(5) the identity, qualifications, and affiliations of the persons
who are to be directors or officers, or voting trustees, if any, upon
the consummation of the plan, have been fully disclosed, and that
the appointment of such persons to such offices, or their continuance
therein, is equitable, compatible with the interests of the creditors
and stockholders and consistent with public policy.
"SEC. 222. A plan may be altered or modified, with the approval
of the judge, after its submission for acceptance and before or after
its confirmation if, in the opinion of the judge, the alteration or
modification does not materially and adversely affect the interests
of creditors or stockholders. If the judge finds that the proposed
alteration or modification, filed with his approval, does materially
and adversely affect the interests of creditors or stockholders, he
shall fix a hearing for the consideration, and a subsequent time for
the acceptance or rejection, of such alteration or modification. The
requirements in regard to notice of hearing, to submission to the
Securities and Exchange Commission, to acceptance, to filing and
hearing of objections to confirmation and to the confirmation, as
prescribed in article VII of this chapter in regard to the plan proposed
to be altered or modified, shall be complied with.
"SEC. 223. Any creditor or stockholder who has previously accepted
the plan proposed to be altered or modified and who does not file a
written rejection of the proposed alteration or modification within
the time fixed by the judge, shall be deemed to have accepted the
alteration or modification and the plan so altered or modified unless
the previous acceptance provides otherwise.
"SEC. 224. Upon confirmation of a plan-

"(1) the plan and its provisions shall be binding upon the debtor,
upon every other corporation issuing securities or acquiring property
under the plan, and upon all creditors and stockholders, whether or
not such creditors and stockholders are affected by the plan or have
accepted it or have filed proofs of their claims or interests and
whether or not their claims or interests have been scheduled or
allowed or are allowable;
"(2) the debtor and every other corporation organized or to be
organized for the purpose of carrying out the plan shall comply
with the provisions of the plan and with all orders of the court
relative thereto and shall take all action necessary to carry out the
plan, including, in the case of a public-utility corporation, the procuring of authorization, approval, or consent of each commission
having regulatory jurisdiction over the debtor or such other
corporation;
"(3) if the judge shall so direct, there shall be deposited and
distributed, in such manner as the judge may direct, the moneys

for all payments which by the provisions of the plan or under this
chapter are required to be made in cash; and
"(4) distribution shall be made, in accordance with the provisions
of the plan, to creditors and stockholders (a) proofs of whose claims
or stock have been filed prior to the date fixed by the judge and are

Determination of
objections to certain
claims or stock.

Property dealt with
to be free and clear of
all claims, etc.

allowed, or (b) if not so filed, whose claims or stock have been listed
by the trustee or scheduled by the debtor in possession as fixed claims
or stock, liquidated in amount and not disputed.
"SEC. 225. Where the claims or stock specified in paragraph (4),
clause (b), of section 224 of this Act are objected to by any party
in interest, the objection shall be heard and summarily determined
by the court.
"SEC. 226. The property dealt with by the plan, when transferred
by the trustee to the debtor or other corporation or corporations provided for by the plan, or when transferred by the debtor in possession

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

to such other corporation or corporations, or when retained by the
debtor in possession, as the case may be, shall be free and clear of
all claims and interests of the debtor, creditors, and stockholders,
except such claims and interests as may otherwise be provided for
in the plan or in the order confirming the plan or in the order directing or authorizing the transfer or retention of such property.
"SEC. 227. The court may direct the debtor, its trustee, any mortgagees, indenture trustees, and other necessary parties to execute and
deliver or to join in the execution and delivery of such instruments
as may be requisite to effect a retention or transfer of property dealt
with by a plan which has been confirmed, and to perform such other
acts, including the satisfaction of liens, as the court may deem necessary for the consummation of the plan.
"SEC. 228. Upon the consummation of the plan, the judge shall
enter a final decree"(1) discharging the debtor from all its debts and liabilities and
terminating all rights and interests of stockholders of the debtor,
except as provided in the plan or in the order confirming the plan
or in the order directing or authorizing the transfer or retention of
property;
"(2) discharging the trustee, if any;
"(3) making such provisions by way of injunction or otherwise
as may be equitable; and
"(4) closing the estate.
"ARTICLE

XII-DISMISSALS AND ADJUDICATTONS

"SEC. 236. If no plan is proposed within the time fixed or extended
by the judge, or if no plan proposed is approved by the judge and no
further time is granted for the proposal of a plan, or if no plan
approved by the judge is accepted within the time fixed or extended
by the judge, or if confirmation of the plan is refused, or if a confirmed plan is not consummated, the judge shall"(1) where the petition was filed under section 127 of this Act
enter an order dismissing the proceeding under this chapter and
directing that the bankruptcy be proceeded with pursuant to the provisions of this Act; or
"(2) where the petition was filed under section 128 of this Act,
after hearing upon notice to the debtor, stockholders, creditors, indenture trustees, and such other persons as the judge may designate, enter
an order either adjudging the debtor a bankrupt and directing that
bankruptcy be proceeded with pursuant to the provisions of this Act
or dismissing the proceeding under this chapter, as in the opinion of
the judge may be in the interests of the creditors and stockholders.
"SEC. 237. Upon the dismissal of a proceeding under this chapter,
where the petition was filed under section 128 of this Act, the judge
shall enter a final decree discharging the trustee, if any, and closing
the estate, except as otherwise provided by section 259 of this Act.
"SEC. 238. Upon the entry of an order directing that bankruptcy
be proceeded with"(1) where the petition was filed under section 127 of this Act,
the bankruptcy proceeding shall be deemed reinstated and shall
thereafter be conducted, so far as possible, as if the petition under
this chapter had not been filed; or where the petition was filed under
section 128 of this Act, the proceeding shall thereafter be conducted
so far as possible, in the same manner and with like effect as if an
involuntary petition for adjudication had been filed at the time when
the petition under this chapter was filed, and a decree of adjudication
had been entered at the time when the petition under this chapter was
approved;

899

Instnrments neces
sary to effectuate retention or transei of
property.

Final decree; provisions.

Dismissal and adJudication.
Conditions

A

ke,p. 88&

Ans, p. 88

AWt, p. S.
Post, p. 9.

Ani,

p. 88.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

900

"(2) a trustee shall be appointed pursuant to section 44 of this Act
and shall supersede any trustee previously appointed; and
"(3) only such claims as are provable under section 63 of this Act
shall be allowed, and claims not already filed may be filed prior to
the expiration of three months after the first date set for the first
meeting of creditors as provided in section 55 of this Act, or, if such
date has been previously set, then prior to the expiration of three
months after the mailing of notices to creditors of the entry of the
order directing that bankruptcy be proceeded with.

Ante, p. 860.
Ante, p. 873.

Ante, p. 865.

Compensation
allowances.

and

Reimbursement for
expenses of petitioners; services, etc.

Ante, pp. 859, 861.
Administration
estate, etc.

of

Creditors and stockholders and their attorneys.

Compensation and
reimbursement, pending bankruptcy proceeding.
Ante, p. S85.

Ante, p. 863.

[52 STAT.

"ARTICLE XIII-C

OMPENSATION AND ALLOWANCES

"SEC. 241. The judge may allow reimbursement for proper costs
and expenses incurred by the petitioning creditors and reasonable
compensation for services rendered and reimbursement for proper
costs and expenses incurred in a proceeding under this chapter"(1) by a referee;
"(2) by a special master;
"(3) by the trustee and other officers, and the attorneys for any
of them;
"(4) by the attorney for the debtor; and
"(5) by the attorney for the petitioning creditors.
"Such compensation of referees and trustees shall not be governed
by sections 40 and 48 of this Act.
"SEC. 242. The judge may allow reasonable compensation for services rendered and reimbursement for proper costs and expenses
incurred in connection with the administration of an estate in a
proceeding under this chapter or in connection with a plan approved
by the judge, whether or not accepted by creditors and stockholders
or finally confirmed by the judge"(1) by indenture trustees, depositaries, reorganization managers,
and committees or representatives of creditors or stockholders;
"(2) by any other parties in interest except the Securities and
Exchange Commission; and
"(3) by the attorneys or agents for any of the foregoing except the
Securities and Exchange Commission.
"SEC. 243. The judge may allow reasonable compensation for services rendered and reimbursement for proper costs and expenses
incurred by creditors and stockholders, and the attorneys for any
of them, in connection with the submission by them of suggestions
for a plan or of proposals in the form of plans, or in connection with
objections by them to the confirmation of a plan, or in connection
with the administration of the estate. In fixing any such allowances,
the judge shall give consideration only to the services which contributed to the plan confirmed or to the refusal of confirmation of
a plan, or which were beneficial in the administration of the estate,
and to the proper costs and expenses incidental thereto.
"SEC. 244. Where a petition is filed under section 127 of this Act,
the judge may allow, if not already allowed, reasonable compensation
for services rendered and reimbursement for proper costs and expenses
incurred in the pending bankruptcy proceeding"(1) by a marshal, receiver, or trustee, as provided in subdivision g of section 48 of this Act, and the attorneys for any of them;
(2) by the attorney for the petitioning creditors;
"(3) by the attorney for the bankrupt; and
"(4) by any other persons and the attorneys for any of them
entitled under this Act to compensation or reimbursement in such
bankruptcy proceeding.

52 STAT.]

901

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 245. Where a petition is filed in a pending bankruptcy proceeding, the judge may allow reasonable compensation for services
rendered and the proper costs and expenses incurred in such bankruptcy proceeding by a referee in bankruptcy. In fixing such compensation, the judge shall not be restricted by the provisions of
section 40 of this Act.
"SEC. 246. Upon the dismissal of a proceeding under this chapter, or
the entry of an order adjudging the debtor a bankrupt, the judge may
allow reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred in such proceeding prior
to such dismissal or order of adjudication by any persons entitled
thereto, as provided in this chapter, and shall make provision for the
payment thereof, and for the payment of all proper costs and expenses
incurred by officers in such proceedings.
"SEC. 247. The judge shall fix a time of hearing for the consideration of applications for allowances, of which hearing notice shall be
given to the applicants, the trustee, the debtor, the creditors, stockholders, indenture trustees, the Securities and Exchange Commission,
and such other persons as the judge may designate, except that, in
the case of allowances for services and reimbursement in a superseded
bankruptcy proceeding, notice need be given only to the applicants,
the debtor, the trustee, and the unsecured creditors, and may be given
to such other classes of creditors or other persons as the judge may
designate. In the case of the dismissal of a proceeding under this
chapter and the entry of an order therein directing that bankruptcy
be proceeded with, notice of the hearing to consider allowances need
not be given to stockholders.
"SEc. 248. In the case of the dismissal of a proceeding under this
chapter and the entry of an order therein directing that a superseded
bankruptcy be proceeded with, the compensation allowed by the
judge, in the course of the proceeding under this chapter, to the
referee, marshal, receiver, or trustee in the bankruptcy proceeding for
services rendered by them in such bankruptcy proceeding shall be
deemed to have been allowed in such bankruptcy proceeding, and
such compensation shall be considered in connection with the making
of future allowances therein or shall be readjusted, so as to comply
with the provisions of this Act fixing their compensation in a bankruptcy proceeding.
"SEC. 249. Any persons seeking compensation for services rendered
or reimbursement for costs and expenses incurred in a proceeding
under this chapter shall file with the court a statement under oath
showing the claims against, or stock of, the debtor, if any, in which a
beneficial interest, direct or indirect, has been acquired or transferred
bv him or for his account, after the commencement of such proceeding.
No compensation or reimbursement shall be allowed to any committee
or attorney, or other person acting in the proceedings in a representative or fiduciary capacity, who at any time after assuming to act in
such capacity has purchased or sold such claims or stock, or by whom
or for whose account such claims or stock have, without the prior
consent or subsequent approval of the judge, been otherwise acquired
or transferred.
"SEC. 250. Appeals may be taken in matters of law or fact from
orders making or refusing to make allowances of compensation or
reimbursement, and may, in the manner and within the time provided
for appeals by this Act, be taken to and allowed by the circuit court of
appeals independently of other appeals in the proceeding, and shall be
summarily heard upon the original papers.

Compensation, pro.
ceeding by referee.

Ante, p. 859.
Allowances in event
of dismissal or adjudging debtor a bankrupt.

Hearings.

Allowances in case
of dismissal of proceeding, etc.

Statement to be
floed by persons seeking comlpensatlon for
services, etc.

Certain acts a bar to
allowance of compensation.

Appeals from allow.
ance or refusal of com
pensation.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

Prior proceedings.

"ARTICLE XIV-PRIOR PROCEEDINGS

Filing of petition
notwithstanding
pendency of prior proceeding.

"SEC. 256. A petition may be filed under this chapter notwithstanding the pendency of a prior mortgage foreclosure, equity, or
other proceeding in a court of the United States or of any State in
which a receiver or trustee of all or any part of the property of a
debtor has been appointed or for whose appointment an application
has been made.
"SEC. 257. The trustee appointed under this chapter, upon his
qualification, or if a debtor is continued in possession, the debtor,
shall become vested with the rights, if any, of such prior receiver or
trustee in such property and with the right to the immediate possession thereof. The trustee or debtor in possession shall also have the
right to immediate possession of all property of the debtor in the
possession of a trustee under a trust deed or a mortgagee under a
mortgage.
"SEC. 258. The judge shall make such provision as may be equitable for the protection of the obligations incurred by a receiver or
trustee in such prior proceeding and for the payment of the reasonable costs and expenses incurred therein as may be allowed by
the judge.
"SEC. 259. Upon a dismissal of a proceeding under this chapter,
such prior proceeding shall become reinstated, and the judge shall
allow the reasonable costs and expenses under this chapter, including the allowances provided for in article XIII of this chapter,
and shall make appropriate provision for the retransfer of such
property to the person or persons entitled thereto upon such terms
as may be equitable for the protection of the obligations incurred
in the proceedings under this chapter by the trustee or debtor in
possession, and for the payment of the costs and expenses of the
proceedings.

Vesting of rights of
prior receiver, etc., In
property.

Protection of Incarred obligations.

Reinstatement of
prior proceedings in
event of dismissal.

General provisions.

"ARTICLE XV-GENERAL PROVISIONS

Suspension of stat*tes of limitation, etc.,
while proceeding
pending.

"SEC. 261. All statutes of limitation affecting claims and interests
provable under this chapter and the running of all periods of time
prescribed by this Act in respect to the commission of acts of bankruptcy, the recovery of preferences, and the avoidance of liens and
transfers shall be suspended while a proceeding under this chapter
is pending and until it is finally dismissed.
'SEC. 262. If a proceeding under this chapter shall be dismissed,
the filing of the petition shall not constitute an act of bankruptcy by
the debtor.
"SEC. 263. Nothing contained in this chapter shall be deemed to
affect or apply to the creditors of any corporation under a mortgage
insured pursuant to the National Housing Act and Acts amendatory
thereof and supplementary thereto.
"SEC. 264. a. The provisions of section 5 of the Securities Act of
1933 shall not apply to"(1) any security issued by the receiver, trustee, or debtor in
possession pursuant to paragraph (2) of section 116 of this Act; or
(2) any transaction in any security issued pursuant to a plan

Dismissal; filing of
petition not to constitute act of bankruptcy.
Chapter Inapplicable to designated creditors.
48 Stat. 1246.
12 U. S. C., ch. 13;
Supp. III, ch. 13.
Prohibitions relating to interstate commerce and the mails.
48 Stat. 77.
15 U.. C.
C 77e.
Exemption of certain securities.
Certain security
transactions.

in exchange for securities of or claims against the debtor or partly

in such exchange and partly for cash and/or property, or issued

upon exercise of any right to subscribe or conversion privilege so
issued, except (a) transactions by an issuer or an underwriter in
connection with a distribution otherwise than pursuant to the plan,
and (b) transactions by a dealer as to securities constituting the
whole or a part of an unsold allotment to or subscription by such
dealer as a participant in a distribution of such securities by the

52 STAT.]

903

75TH CONG., 3D SESS.-CH. 575--JUNE 22, 1938

issuer or by or through an underwriter otherwise than pursuant
to the plan.
"b. As used in this section, the terms 'security', 'issuer', 'underwriter', and 'dealer' shall have the meanings provided in section 2 of
the Securities Act of 1933, and the term 'Securities Act of 1933' shall
utS
be deemed to refer to such Act as heretofore or hereafter amended.
"SEC. 265. a. In addition to the notices elsewhere expressly provided, the Securities and Exchange Commission shall be given
notice of all other steps taken in connection with a proceeding under

Terms defned.
48 Stst. 74.
15 U. S. C.

7,b.

Securities and ExNotice to, of all
otheOr wsteps cedn-

this chapter. Any notice which this chapter requires to be given to ings.
the Securities and Exchange Commission shall be deemed to have been
sufficiently given if it is given by registered first-class mail, postage
prepaid, addressed to the Securities and Exchange Commission at
Washington, District of Columbia, or at such other place as the
Securities and Exchange Commission shall designate by written
notice filed in the proceeding and served upon the parties thereto.
The clerk and, in the case of a reference, the referee after such reference, shall forthwith transmit to the Securities and Exchange Commission copies of (1) every petition filed under this chapter; (2) the
answers thereto, if any; (3) the orders approving or dismissing
petitions; (4) the orders appointing trustees or continuing debtors
in possession; (5) the orders determining the time within which the
claims of creditors may be filed and allowed, and the division of
creditors and stockholders into classes according to the nature of their
respective claims and stock; (6) the orders approving any plan or
plans, together with copies of such plans; (7) the orders approving
alterations or modifications in plans, together with copies of such
alterations or modifications; (8) the orders confirming plans, together
with copies of such plans; (9) all applications for allowances for
compensation and expenses, and the orders making or refusing to
make such allowances; (10) the orders adjudging debtors to be solvent or insolvent; (11) the orders directing liquidations of estates or
dismissing proceedings; (12) and such other papers filed in the
proceedings as the Securities and Exchange Commission may request
or which the court may direct be transmitted to it. Copies of the
opinions or reports, if any, of the judge, referee, or special master,
with respect to the matters enumerated, shall also be transmitted to
the Securities and Exchange Commission.
ersonalrvices.
"b. The provisions of section 4 (b) of the Securities Exchange
I
u.s. .c. 78d.
th
of
power
the
to
respect
with
applicable
be
shall
1934
of
Act
Securities and Exchange Commission to appoint and fix the compensation of such officers, attorneys, examiners, and other exl)erts,
and such other officers and employees, as may be necessary for
carrying out its functions under this chapter.
psg
Designated
"SEC. 266. In addition to the notices elsewhere expressly provided,
the clerk and, in the case of a reference, the referee, after such

reference, shall forthwith transmit to the Secretary of the Treasury
copies of all petitions, answers, orders, and applications, as more
specifically enumerated in section 265 of this Act, and copies of such
other papers filed in the proceedings as the Secretary of the Treasury
may request or which the court may direct be transmitted to him.
Copies of the opinions or reports, if any, of the judge, referee, or
special master, with respect to the matters so enumerated, shall also
be transmitted to the Secretary of the Treasury. Any order fixing
the time for confirming a plan which affects claims or stock of the
United States shall include a notice to the Secretary of the Treasury
of not less than thirty days.
"SEC. 267. The issuance, transfer, or exchange of securities, or the

making or delivery of instruments of transfer under any plan con-

Treasury.

sta

p

tax eemp-

904

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Mcodification or canness,

ertain

proets

accrued.

Ifplanforpurpseof

basis of property for
income tax purposes.

Taxes
one
year owing
fromwithin
filing
petition and not as
sreadtionr
'p.ono

Provio.
ofsettlement, etan
Rights ofemployees

[52 STAT.

firmed under this chapter, shall be exempt from any stamp taxes now
or hereafter imposed under the laws of the United States or of any
State.
SEC. 268. Except as provided in section 270 of this Act, no income
or profit taxable under any law of the United States or of any State
now in force or which may hereafter be enacted, shall, in respect to
the adjustment of the indebtedness of a debtor in a proceeding under
this chapter, be deemed to have accrued to or to have been realized
by a debtor, by a trustee provided for in a plan under this chapter,
or by a corporation organized or made use of for effectuating a plan
under this chapter by reason of a modification in or cancelation in
whole or in part of any of the indebtedness of the debtor in a
proceeding under this chapter.
"SEc. 269. Where it appears that a plan has for one of its principal
purposes the avoidance of taxes, objection to its confirmation may be
made on that ground by the Secretary of the Treasury, or, in the case
of a State, by the corresponding official or other person so authorized.
Such objections shall be heard and determined by the judge, independently of other objections which may be made to the confirmation
of the plan, and, if the judge shall be satisfied that such purpose
exists, he shall refuse to confirm the plan.
"SEC. 270. In determining the basis of property for any purposes

of any law of the United States or of a State imposing a tax upon
income, the basis of the debtor's property (other than money) or of
such property (other than money) as is transferred to any person
required to use the debtor's basis in whole or in part shall be decreased
by an amount equal to the amount by which the indebtedness of the
debtor, not including accrued interest unpaid and not resulting in a
tax benefit on any income tax return, has been canceled or reduced in
a proceeding under this chapter. The Commissioner of Internal
Revenue, with the approval of the Secretary of the Treasury, shall
prescribe such regulations as he may deem necessary in order to
reflect such decrease in basis for Federal income-tax purposes and
otherwise carry into effect the purposes of this section.
"SEC. 271. Any provision in this chapter to the contrary notwithstanding, all taxes which may be found to be owing to the United
States or any State from a debtor within one year from the date of
the filing of a petition under this chapter and have not been assessed
prior to the date of the confirmation of a plan under this chapter, and
all taxes which may become owing to the United States or any State
from a receiver or trustee of a debtor or from a debtor in possession,
shall be assessed against, may be collected from and shall be paid by
the debtor or the corporation organized or made use of for effectuating a plan under this chapter: Provided, however, That the United
States or any State may in writing accept the provisions of any plan
dealing with the assumption, settlement, or payment of any such tax.
"SEC. 272. The right of employees or of persons seeking employ-

ees tojoin labor organ- ment on the property of a debtor under the jurisdiction of the court
izstions.

to join a labor organization of their choice, or to refuse to join or
remain members of a company union, shall be free from interference,
restraint, or coercion by the court, a debtor, or trustee. It shall be
the duty of a debtor or trustee to report to the judge any agreement
restricting or interfering with such right, and the judge shall thereupon enter an appropriate order for the termination of such agreement and for notice to the employees that the same is no longer binding upon them. No funds of the estate shall be used by a debtor or
a trustee for the purpose of maintaining company unions.

52 STAT.]

905

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"ARTICLE XVI-AVHEN CHAPTER TAKES EFFECT

"SEC. 276. a. This chapter shall apply to debtors by whom or
against whom petitions are filed on and after the effective date of this
amendatory Act and to the creditors and stockholders thereof,
whether their rights, claims, or interests of any nature whatsoever
have been acquired or created before or after such date;
"b. a petition may be filed under this chapter in a proceeding in
bankruptcy which is pending on such date, and a petition may be
filed under this chapter notwithstanding the pendency on such date
of a proceeding in which a receiver or trustee of all or any part of
the property of a debtor has been appointed or for whose appointment application has been made in a court of the United States or of
any State;
"c. the provisions of sections 77A and 77B of chapter VIII, as
amended, of the Act entitled 'An Act to establish a uniform system
of bankruptcy throughout the United States', approved July 1,
1898, shall continue in full force and effect with respect to proceedings pending under those sections upon the effective date of this
amendatory Act, except that"(1) if the petition in such proceedings was approved within
three months prior to the effective date of this amendatory Act,
the provisions of this chapter shall apply in their entirety to
such proceedings; and
"(2) if the petition in such proceedings was approved more
than three months before the effective date of this amendatory
Act, the provisions of this chapter shall apply to such proceedings to the extent that the judge shall deem their application
practicable; and
"(3) sections 268 and 270 of this Act shall apply to any plan
confirmed under section 77B before the effective date of this
amendatory Act and to any plan which may be confirmed under
section 77B on and after such effective date, except that the
exemption provided by section 268 of this Act may be disallowed
if it shall be made to appear that any such plan had for one of
its principal purposes the avoidance of income taxes, and except
further that where such plan has not been confirmed on and after
such effective date, section 269 of this Act shall apply where
practicable and expedient.
"CHAPTER XI-ARRANGEMENTS
"ARTICLE I-CONS'IUCTION

"SEC. 301. The provisions of this chapter shall apply exclusively
to proceedings under this chapter.
"SEC. 302. The provisions of chapters I to VII, inclusive, of this
Act shall, insofar as they are not inconsistent with or in conflict with
the provisions of this chapter, apply in proceedings under this chapter.
For the purposes of such application, provisions relating to 'bankrupts' shall be deemed to relate also to 'debtors', and 'bankruptcy
proceedings' or 'proceedings in bankruptcy' shall be deemed to include
proceedings under this chapter. For the purposes of such application the date of the filing of the petition in bankruptcy shall be
taken to be the date of the filing of an original petition under
section 322 of this Act, and the date of adjudication shall be taken
to be the date of the filing of the petition under section 321 or 322
of this Act except where an adjudication had previously been entered.

When chapter takes
effect.

Operation of designated sections in pending proceedings.
48 Stat. 912.
11 U.S. C. §§C.
206,

207; Supp. III, § 207.

Exceptions.

('liapter XI-Arrangoementa.

Construction.
Application of provisions.

Post, p. 907.

906
Definitions.

"Arrangement."

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

"AmRCLiE II-DEFINITONS
"SEC. 306. For the purposes of this chapter, unless inconsistent
with the context"(1)

'arrangement' shall mean any plan of a debtor for the settle-

ment, satisfaction, or extension of the time of payment of his
unsecured debts, upon any terms;
"Consideration."
" (2) 'consideration' shall include evidences of indebtedness, either
secured or unsecured, stock and certificates of beneficial interest
therein, and certificates of beneficial interest in property;
"Debtor."
"(3) 'debtor' shall mean a person who could become a bankrupt
Ante,p.845.
under section 4 of this Act and who files a petition under this
chapter "tExecutory con"(4) 'executory contracts' shall include unexpired leases of real
property; and
"Petition."
(5) 'petition' shall mean a petition filed under this chapter by
a debtor proposing an arrangement.
Terms
appliabl
to be extended.

"Creditors."

"SEC. 307. Unless inconsistent with the context and for the pur-

poses of an arrangement providing for an extension of time for
payment of debts in full and applicable exclusively to the debts
to be extended-

"(1) 'creditors' shall include the holders of all unsecured debts,

demands, or claims of whatever character against a debtor, whether
Ane, p.8.

Debts"or"clas"
Creditor "afected"
by an arrangement.

or not provable as debts under section 63 of this Act and whether
liquidated or unliquidated, fixed or contingent; and

"(2) 'debts' or 'claims' shall include all unsecured debts, demands,
or claims of whatever character against a debtor, whether or not
provable as debts under section 63 of this Act and whether liquidated
or unliquidated, fixed or contingent.
"SEC. 308. A

creditor shall be deemed to be 'affected' by an

arrangement only if his interest shall be materially and adversely
affected thereby. In the event of controversy, the court shall after
hearing upon notice summarily determine whether any creditor is
so affected.
"ARlTICL III--JuISDICIION, POWERS, AND DUTIES OF TEE COURT
Jurisdiction,
powers, and duties of
the court.

"SEC. 311. Where not inconsistent with the provisions of this chapter, the court in which the petition is filed shall, for the purposes
of this chapter, have exclusive jurisdiction of the debtor and his
property, wherever located.
"SEC. 312. Where not inconsistent with the provisions of this chapter, the jurisdiction, powers, and duties of the court shall be the
same"(1) where a petition is filed under section 321 of this Act and a
decree of adjudication has not been entered in the pending bankruptcy proceeding, as if a decree of adjudication had been entered
in such bankruptcy proceeding at the time the petition under this
chapter was filed; or
"(2) where a petition is filed under section 322 of this Act, as if a
voluntary petition for adjudication in bankruptcy had been filed and
a decree of adjudication had been entered at the time the petition
under this chapter was filed.
"SEC. 313. Upon the filing of a petition, the court may, in addition
to the jurisdiction, powers, and duties hereinabove and elsewhere
in this chapter conferred and imposed upon it"(1) permit the rejection of executory contracts of the debtor,
upon notice to the parties to such contracts and to such other parties
in interest as the court may designate;

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"(2) upon such notice as the court may prescribe and upon cause
shown, authorize the receiver or trustee, or the debtor in possession,
to lease or sell any property of the debtor, whether real or personal,
upon such terms and conditions as the court may approve;
"(3) whenever under this chapter the court is required or permitted to fix a time for any purpose, the court may upon cause
shown extend such time.
"SEC. 314. The court may, in addition to the relief provided by
section 11 of this Act and elsewhere under this chapter, enjoin or
stay until final decree the commencement or continuation of suits
other than suits to enforce liens upon the property of a debtor, and
may, upon notice and for cause shown, enjoin or stay until final
decree any act or the commencement or continuation of any proceeding to enforce any lien upon the property of a debtor.
"SEC. 315. Whenever notice is to be given under this chapter, the
court shall designate, if not otherwise specified hereunder, the time
within which, the persons to whom, and the form and manner in
which the notice shall be given. Any notice to be given under this
chapter may be combined, whenever feasible, with any other notice
or notices under this chapter.
"SEC. 316. Where not inconsistent with the provisions of this
chapter, the jurisdiction of appellate courts shall be the same as in
a bankruptcy proceeding.
"ARTICLE IV-PETr

ON AND STAY

"SEO. 321. A debtor may file a petition under this chapter in a
pending bankruptcy proceeding either before or after his
adjudication.
"SEC. 322. If no bankruptcy proceeding is pending, a debtor may
file an original petition under this chapter with the court whic
would have jurisdiction of a petition for his adjudication.
"SEc. 323. A petition filed under this chapter shall state that the
debtor is insolvent or unable to pay his debts as they mature, and
shall set forth the provisions of the arrangement proposed by him.
"SEC. 324. The petition shall be accompanied by"(1) a statement of the executory contracts of the debtor;
"(2) the schedules and statement of affairs, if not previously filed;
and
"(3) payment to the clerk of the fees, if not already paid, required
by this Act.
SEC. 325. A petition filed under section 321 of this Act shall not
act as a stay of adjudication or of the administration of the estate,
but the court may, upon application of the debtor and upon notice
to all parties in interest, including the creditors' committee and the
receiver or trustee, if any such has been appointed, grant a stay
of adjudication or of the administration of the estate upon such
terms as may be proper for the protection of the estate and for
indemnity against loss thereto or diminution thereof.
"SEC. 326. Where a petition is filed under section 322 of this Act,
the court may, upon hearing and after notice to the debtor and to
such other persons as the court may direct, order the debtor to file
a bond or undertaking, with such sureties as may be approved by the
court and in such amount as the court may fix, to indemnify the
estate against subsequent loss thereto or diminution thereof until,
in the event of the entry of an order of adjudication under this
chapter, the entry of such order.
"SEC. 327. Upon failure of the debtor to comply with such order
for indemnity, as prescribed in section 326 of this Act, the court may,

907

Power to enjoin or
stay Certain suits.
Ante, p. 849.

Designation of time,
form, etc., of giving
notice.

Jurisdiction of appellate courts.

Petition and stay.
Petition by debtor
in pending proceeding.
If no
pending.

Contents
tion.

proceeding

of

peti-

Accompanying
papers, etc.

If pending proceeding, effect of petition
on adjudication, etc.

I no pending pr
ceeding, ng of bond
etc.

Failure to eomply
with orde for indemnity.

908

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

after hearing upon notice to the debtor, the creditors' committee, if
any has been appointed, and to such other persons as the court may
direct, either adjudge the debtor a bankrupt and direct that bankruptcy be proceeded with pursuant to the provisions of this Act or
dismiss the proceedings under this chapter, as in the opinion of the
court may be in the interest of the creditors.
Proceedings subsequent to filing of
petition.
Reference of proceeding to referee.
Appointment of receiver, etc.

Appointment of appraisers.

Meeting of creditors.

Notice of meeting,
accompanying information.

Procedure.

Duties of judge or
referee at meeting, etc.

"ARTIcLE V-PROCEEDINGS SUBSEQUENT TO FILING OF PETITION

"SEC. 331. The judge may refer the proceeding to a referee.
"SEC. 332. The court may, upon the application of any party in
interest, appoint, if necessary, a receiver of the property of the
debtor, or, if a trustee in bankruptcy has previously been appointed,
shall continue such trustee in possession.
"SEC. 333. The court may, upon the application of the receiver,
trustee, or any party in interest, appoint, if not previously appointed,
one or more appraisers who shall prepare and file under oath an
inventory and appraisal of the property of the debtor, and may
prescribe how such inventory and appraisal shall be made.
"SEC. 334. The court shall promptly call a meeting of creditors,
upon at least ten days' notice by mail to the debtor, the creditors,
and other parties in interest.
"SEC. 335. The notice of such meeting of creditors shall be accompanied by a copy of the proposed arrangement, a summary of the
liabilities as shown by the schedules and a summary of the appraisal,
if one has been made, or, if not made, a summary of the assets as
shown by the schedules. Such notice may also name the time for
the filing of the application to confirm the arrangement and the
time for the hearing of the confirmation and of such objections as
may be made to the confirmation.
"SEC. 336. At such meeting, or at any adjournment thereof, the
judge or referee"(1) shall preside;
(2) may receive proofs of claim and allow or disallow them(3) shall examine the debtor or cause him to be examined and
hear witnesses on any matter relevant to the proceeding; and
"(4) shall receive and determine the written acceptances of creditors on the proposed arrangement, which acceptances may be
obtained by the debtor before or after the filing of a petition under
this chapter.
"SEC. 337. At such meeting, or at any adjournment thereof, the
judge or referee shall, after the acceptance of the arrangement"(1) appoint the receiver or trustee, if any, or otherwise appoint
some other person, to receive and distribute, subject to the control of
the court, the moneys and consideration, if any, to be deposited by
the debtor; require such person to give bond with surety to be
approved by the court in such amount as the court shall fix; and fix
the amount or rate of such person's compensation, not in excess of
the compensation allowable to a receiver under this Act;
"(2) fix a time within which the debtor shall deposit, in such
place as shall be designated by and subject to the order of the court,
the consideration, if any, to be distributed to the creditors, the money
necessary to pay all debts which have priority, unless such priority
creditors shall have waived their claims or such deposit, or consented
in writing to any provision of the arrangement for otherwise dealing
with such claims, and the money necessary to pay the costs and
expenses of the proceedings and the actual and necessary expenses
incurred in connection with the proceedings and the arrangement
by the committee of creditors and the attorneys or agents of such
committee, in such amount as the court may allow; and

52 STAT.]

"(3) fix a time for the filing of the application to confirm the
arrangement and for a hearing on the confirmation thereof or any
objections to the confirmation, unless such times have already been
named in the notice of the meeting or unless all creditors affected
by the arrangement have accepted it.
"SEC. 338. At such meeting the creditors may appoint a committee, if none has previously been appointed under this Act, and,
if a trustee has not previously been appointed, may nominate a
trustee who shall thereafter be appointed by the court in case it shall
become necessary to administer the estate in bankruptcy as provided
under this chapter.
"ARTICLE

909

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

VI-TITLE, RIGHTS, DUTIES,

Appointment of
committee by creditors.
Nomination of trustee.

AND POWERS OF DEBTOR AND

OFFICERS

"SEC. 341. Where not inconsistent with the provisions of this
chapter, the powers and duties of the officers of the court and,
subject to the approval of the court, their fees, and the rights,
privileges, and duties of the debtor shall be the same, where a
petition is filed under section 321 of this Act and a decree of
adjudication has not been entered in the pending bankruptcy proceeding, as if a decree of adjudication had been entered in such
bankruptcy proceeding at the time the petition under this chapter
was filed, or, where a petition is filed under section 322 of this Act,
as if a voluntary petition for adjudication in bankruptcy had been
filed and a decree of adjudication had been entered at the time the
petition under this chapter was filed.
"SEC. 342. Where no receiver or trustee is appointed, the debtor
shall continue in possession of his propetry 1 and shall have all the
title and exercise all the powers of a trustee appointed under this
Act, subject, however, at all times to the control of the court and
to such limitations, restrictions, terms, and conditions as the court
may from time to time prescribe.
SEC. 343. The receiver or trustee, or the debtor in possession, shall
have the power, upon authorization by and subject to the control of
the court, to operate the business and manage the property of the
debtor during such period, limited or indefinite, as the court may
from time to time fix, and during such operation or management
shall file reports thereof with the court at such intervals as the
court may designate.
"SEC. 344. During the pendency of a proceeding for an arrangemnent, or after the confirmation of the arrangement where the court
has retained jurisdiction, the court may upon cause shown authorize
the receiver or trustee, or the debtor in possession, to issue certificates of indebtedness for cash, property, or other consideration
aIpproved by the court, upon such terms and conditions and with such
security and priority in payment over existing obligations as in
the particular case may be equitable.
"ARTICLE VII-CREDITORS AND CLAIMS

"SEC. 351. For the purposes of the arrangement and its acceptance,
the court may fix the division of creditors into classes and, in the
event of controversy, the court shall after hearing upon notice summarily determine such controversy.
"SEC. 352. Where not inconsistent with the provisions of this chapter, the rights, duties, and liabilities of creditors and of all other
persons with respect to the property of the debtor shall be the same,
1

So in original.

Title, rights, duties,
and powers of debtor
and officers.

Where no receiver
or trustee is appointed.

Operation of business, etc., of debtor.

Certificates
debtedness.

of in-

Creditors
claims.

and

Division of creditors
into classes.

Rights, duties, and
liabilities of creditors,
etc.

PUBLIC LAWS-CH. 575-JUNE 22, 1938
Ante, p. W0.

Rejection of executory contract; status
afnjured person.

Limitation on claim
*(landlord.

PrJito.

Assignee of future
rent claim, damages.

Expiration of time
for filing claims.
Ante, pp. 873, 867.

Order directing
bankruptcy to be proceeded with, claims
allowed.
Ante, p. 873.

Aite, p. 8M.

where a petition is filed under section 321 of this Act and a decree
of adjudication has not been entered in the pending bankruptcy
proceeding, as if a decree of adjudication had been entered in such
bankruptcy proceeding at the time the petition under this chapter
was filed, or, where a petition is filed under section 322 of this Act,
as if a voluntary petition for adjudication in bankruptcy had been
filed and a decree of adjudication had been entered at the time the
petition under this chapter was filed.
"SEC. 353. In case an executory contract shall be rejected pursuant
to the provisions of an arrangement or to the permission of the court
given in a proceeding under this chapter, or shall have been rejected
by a trustee or a receiver in bankruptcy or receiver in equity in a
prior pending proceeding, any person injured by such rejection shall,
for the purposes of this chapter and of the arrangement, its acceptance and confirmation, be deemed a creditor. The claim of the landlord for injury resulting from the rejection of an unexpired lease of
real estate or for damages or indemnity under a covenant contained
in such lease shall be provable, but shall be limited to an amount not
to exceed the rent, without acceleration, reserved by such lease for
the three years next succeeding the date of the surrender of the premises to the landlord or the date of reentry of the landlord, whichever
first occurs, whether before or after the filing of the petition, plus
unpaid accrued rent, without acceleration, up to the date of surrender or reentry: Provided, That the court shall scrutinize the circumstances of an assignment of a future rent claim and the amount of
the consideration paid for such assignment in determining the
amount of damages allowed the assignee thereof.
"SEc. 354. If the time for filing claims in a pending bankruptcy
proceeding has expired prior to the filing of a petition under this
chapter, claims provable under section 63 of this Act, and not filed
within the time prescribed by subdivision n of section 57 of this Act,
shall not be allowed in the proceedings or participate in an arrangement under this chapter, and shall not be allowed in the bankruptcy proceeding when reinstated as provided in this chapter.
"SEC. 355. Upon the entry of an order under the provisions of this
chapter directing that bankruptcy be proceeded with only such
claims as are provable under section 63 of this Act shali be allowed
and, except as provided in section 354 of this Act, claims not already
filed may be filed within three months after the first date set for the
first meeting of creditors, held pursuant to section 55 of this Act,
or, if such date has previously been set, then within three months
after the mailing of notice to creditors of the entry of the order
directing that bankruptcy be proceeded with.
"ARHICLE VIII-PROVISIONS OF

Provisions

rangement.

of

ar.

[52 STAT.

ARRANGEMENT

"SEC. 356. An arrangement within the meaning of this chapter
shall include provisions modifying or altering the rights of unsecured creditors generally or of some class of them, upon any terms
or for any consideration.
"SEC. 357. An arrangement within the meaning of this chapter
may include"(1) provisions for treatment of unsecured debts on a parity one
with the other, or for the division of such debts into classes and the
treatment thereof in different ways or upon different terms;
"c2)provisions for the rejection of any executory contract;
3) provisions for specific undertakings of the debtor during
any period of extension provided for by the arrangement, including
provisions for payments on account;

52 STAT.]

911

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"(4) provisions for the termination, under specified conditions, of
any period of extension provided by the arrangement;
"(5) provisions for continuation of the debtor's business with or
without supervision or control by a receiver or by a committee of
creditors or otherwise;
"(6) provisions for payment of debts incurred after the filing
of the petition and during the pendency of the arrangement, in
priority over the debts affected by such arrangement;
"(7) provisions for retention of jurisdiction by the court until
provisions of the arrangement, after its confirmation, have been performed; and
"(8) any other appropriate provisions not inconsistent with this
chapter.
"ARTICLE IX-CONFIRMATION

OF ARRANGEMENT

"SEc. 361. An arrangement which at the meeting of creditors, as
provided in section 336 of this Act, has been accepted in writing by
all creditors affected thereby, whether or not their claims have been
proved, shall be confirmed by the court when the debtor shall have
made the deposit required under this chapter and under the arrangement, and if the court is satisfied that the arrangement and its acceptance are in good faith and have not been made or procured by any
means, promises or acts forbidden by this Act.
"SEC. 362. If an arrangement has not been so accepted, an application for the confirmation of the arrangement may be filed with
the court within such time as the court shall have fixed in the notice
of such meeting, or at or after such meeting and after, but not
before"(1) it has been accepted in writing by a majority in number of
all creditors or, if the creditors are divided into classes, by a majority
in number of all creditors of each class, affected by the arrangement, whose claims have been proved and allowed before the conclusion of the meeting, which number shall represent a majority in
amount of such claims generally or of each class of claims, as the
case may be; and
"(2) the debtor has made the deposit required under this chapter
and under the arrangement.
"SEC. 363. Alterations or modifications of all arrangement may be
proposed in writing by a debtor, with leave of court, at any time
before the arrangement is confirmed.
"SEC. 364. Unless the court finds that the proposed alteration or
modification does not materially and adversely affect the interest of
any creditor who has not in writing assented thereto, the court shall
adjourn the meeting or, if closed, reopen the meeting, and may enter
an order that any creditor who accepted the arrangement and who
fails to file with the court, within such time as shall be fixed in the
order, his rejection of the altered or modified arrangement, shall be
deemed to have accepted the alteration or modification and the
arrangement so altered or modified, unless the previous acceptance
provides otherwise.
"SEC. 365. At least ten days' notice of the adjourned or reopened
meeting, together with a copy of the order, if entered, and of the
proposed alteration or modification, shall be given to the debtor, the
creditors, and other parties in interest.
"SEC. 366. The court shall confirm an arrangement if satisfied
that"(12 the provisions of this chapter have been complied with;
(2 it is for the best interests of the creditors;

Confirmation of arrangement.
Ante, p. 908.

If arrangement not
accepted, application
for confirmation.

Proposal by debtor
for alterations, etc.

Presumption of acceptance by creditor.

Notice.

Confirmation of arrangement; findings
by court.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Effect of confirmation of arrangement.

Ante, p. 910.

Retention of jurisdiction by court.

Ante, p. 909.

Distribution of consideration if le bts
allowed; rights.

Discharge of debtor.

Ante, pp. 910, 851.

Final decree.

Dismissal and adjudication.
If arrangement
withdrawn, not accepted, etc.; action by
court.

[52 STAT.

"(3) it is fair and equitable and feasible;
"(4) the debtor has not been guilty of any of the acts or failed
to perform any of the duties which would be a bar to the discharge
of a bankrupt; and
"(5) the proposal and its acceptance are in good faith and have
not been made or procured by any means, promises, or acts forbidden
by this Act.
"SEc. 367. Upon confirmation of an arrangement"(1) the arrangement and its provisions shall be binding upon
the debtor, upon any person issuing securities or acquiring property under the arrangement and upon all creditors of the debtor,
whether or not they are affected by the arrangement or have accepted
it or have filed their claims, and whether or not their claims have
been scheduled or allowed and are allowable;
"(2) the money deposited for priority debts and for the costs and
expenses shall be disbursed to the persons entitled thereto;
"(3) the consideration deposited, if any, shall be distributed and
the rights provided by the arrangement shall inure to the creditors
affected by the arrangement whose claims are not barred by the provisions of section 354 of this Act, and (a) have been proved prior to
the date of confirmation and are allowed, or (b) whether or not
proved, have been scheduled by the debtor as fixed liabilities, liquidated in amount, and are not disputed; and
"(4) except as otherwise provided in sections 369 and 370 of this
Act, the case shall be dismissed.
"SEC. 368. The court shall retain jurisdiction, if so provided in the
arrangement.
"SEC. 369. The court shall in any event retain jurisdiction until the
final allowance or disallowance of all debts, affected by the arrangement and not barred by the provisions of section 352 of this Act,
which"(1) have been proved, but not allowed or disallowed, prior to the
date of confirmation; or
"(2) are disputed or unliquidated, have been scheduled by the
debtor, and are proved within such time as the court may direct; or
"(3) arise from the rejection of executory contracts by the debtor
and are proved within such time as the court may direct.
"SEC. 370. Upon the allowance of any debts specifie(d in parngraphs
(1), (2), and (3) of section 369 of this Act, the consideration. if any,
deposited for them shall be distributed and the rights provided by
the arrangement shall inure to the creditors to whom such debts are
owing.
"S E O . 371. The confirmation of an arrangement shall discharge a
debtor from all his unsecured debts and liabilities provided for by
the arrangement, except as provided in the arrangement or the order
confirming the arrangement, including the claims specified in section
354 of this Act, but excluding such debts as, under section 17 of this
Act, are not dischargeable.
"SEC. 372. Upon the consummation of a proceeding under this
chapter after confirmation of an arrangement, the court shall enter a
final decree discharging the receiver or trustee, if any; closing the
estate; and making such provisions, by way of injunction or otherwise, as may be equitable.
"ARTICLE X-DISMISSAL AND ADJUDICATION

"SEC. 376. If an arrangement is withdrawn or abandoned prior
to its acceptance, or is not accepted at the meeting of creditors or
within such further time as the court may fix, or if the money or
other consideration required to be deposited is not deposited or the

52 STAT.]

913

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

application for confirmation is not filed within the time fixed by the
court, or if confirmation of the arrangement is refused, the court
shall"(1) where the petition was filed under section 321 of this Act,
enter an order dismissing the proceeding under this chapter and
directing that the bankruptcy be proceeded with pursuant to the
provisions of this Act; or
"(2) where the petition was filed under section 322 of this Act,
enter an order, upon hearing after notice to the debtor, the creditors,
and such other persons as the court may direct, either adjudging
the debtor a bankrupt and directing that bankruptcy be proceeded
with pursuant to the provisions of this Act or dismissing the proceeding under this chapter, whichever in the opinion of the court
may be in the interest of the creditors.
"SEC. 377. Where the court has retained jurisdiction after the
confirmation of an arrangement and the debtor defaults in any of
the terms thereof or the arrangement terminates by reason of the
happening of a condition specified in the arrangement, the court
upon hearing after notice to the debtor, the creditors, and such other
persons as the court may direct shall"(1) where the petition has been filed under section 321 of this
Act, enter an order dismissing the proceeding under this chapter
and adjudging the debtor a bankrupt, if not previously so adjudged,
and directing that the bankruptcy be proceeded with pursuant to
the provisions of this Act; or
"(2) where the petition has been filed under section 322 of this
Act, enter an order either adjudging the debtor a bankrupt and
directing that bankruptcy be proceeded with pursuant to the provisions of this Act or dismissing the proceeding under this chapter,
whichever in the opinion of the court may be in the interest of
the creditors.
"SEC. 378. Upon the entry of an order directing that bankruptcy
be proceeded with'"(1) in the case of a petition filedtnder section 321 of this Act,
the bankruptcy proceeding shall be deelmed reinstated and thereafter
shall be coindlcted, so far as possible, as if sclh petition ulnder this
chapter liad not bell filed; and
"(2) in the case of a pettiion filed uIlder section 322 of this Act,
the proceed(ing shall be conducted, so far as possible, in tlhe same
manner and with like effect as if a voluntary petition for adjudication in bankruptcy had been filed and a decree of adjudication had
been entered on the day wahe the petition under this chapter was
filed; and the trustee nominated by creditors under this chapter
shall be appointed by the court, or, if not so nominated or if the
trustee so nominated fails to qualify within five days after notice
to him of the entry of such order, a trustee shall be appointed as
provided in section 44 of this Act.
"SEc. 379. No adjudication shall be entered under this chapter
against a wage earner or farmer unless such person shall in writing
file with the court consent to the adjudication.
"SEC. 380. TUon the dismissal of a proceeding originated by a
petition filed under section 322 of this Act, the court shall enter a
nal decree discharging the receiver, if any, and closing the estate.
"AaTICLE XI-ARRANGEME-XTS, WHEN SrE

ASIDE OR MODIFEED

"SEC. 386. If, upon the application of parties in interest filed at
any time within six months after an arrangement has been confirmed,
it shall be made to appear that fraud was practiced in the procuring
36525e°--8

-

--.

8

Ante, p. 907.

Ante, p. 907.

Default by debtor
after confirmation;
termination.

Ante, p. 907.

Ante, p. 907.

Entry of order directing bankruptcy to
be proceeded with.

Ante, p. S60.
Wage earners and
farmers, consent to
adjudication.
Final decree.
Ante, p. 907.

Arrangements, when
set aside or modified.
Fraud in procuring;
powers of court.

914

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Aste, p.

[52 STAT.

of such arrangement and that knowledge of such fraud has come
to the petitioners since the confirmation of such arrangement"(1) if the debtor has been guilty of or has participated in the
fraud or has had knowledge thereof before the confirmation and
has failed to inform the court of the fraud, the court may set aside
the confirmation and thereupon, (a) where the petition was filed
under section 321 of this Act, reinstate the pending bankruptcy
proceeding, adjudge the debtor a bankrupt, if he has not already
been so adjudged, and direct that the bankruptcy proceeding be
proceeded with, or (b) where the petition was filed under section 322
of this Act, reinstate the proceeding, adjudge the debtor a bankrupt, and direct that bankruptcy be proceeded with pursuant to
the provisions of this Act; or
"(2) the court may set aside the confirmation, reinstate the proceeding under the petition filed under this chapter, and hear and
determine applications for leave to propose, within such time as the
court may fix alterations or modifications of the arrangement for
the purpose of correcting the fraud; or
"(3) the court may reinstate the proceeding under the petition
filed under this chapter and modify or alter the arrangement for
the purpose of correcting the fraud, but may not materially modify
or alter the arrangement adversely to the interests of any party
who did not participate in the fraud and who does not consent
to such modification or alteration, or to the prejudice of any innocent
person, who, for value, subsequent to the confirmation, acquired rights
in reliance upon it.

07.

"ARTICLE

General provisions.

XII-GENERAL PROVISIONS

Suspension of statitation,etc.,
while proceeding

"SEC. 391. All statutes of limitation affecting claims provable under
this chapter and the running of all periods of time prescribed by

pending.

this Act in respect to the commission of acts of bankruptcy, the
recovery of preferences and the avoidance of liens and transfers
shall be suspended while a proceeding under this chapter is pending
and until it is finally dismissed.

utes of lim

Notices, how given.

"SEC.

392. Unless otherwise directed by the court, all notices

required by this chapter may be given by mail to the parties entitled
thereto to their addresses ascertained in the manner prescribed for
other notices in section 58 of this Act.

Ante, p. 867.
relat-

"SE O. 393. a. The provisions of section 5 of the Securities Act of

merce and the mails.
77e.
4s US. I.

1933 shall not apply to"(1) any security issued by a receiver, trustee, or debtor in posses-

Prohibiions

Exemption of cer-

tain securities.
Certain security

traactons

Term defined.

tu. 7s.

T77tb.

sion pursuant to section 344 of this Act; or
"(2) any transaction in any security issued pursuant to an arrangement in exchange for securities of or claims against the debtor or
partly in such exchange and partly for cash and/or property, or
issued upon exercise of any right to subscribe or conversion privilege
so issued, except (a) transactions by an issuer or an underwriter in
connection wit a distribution otherwise than pursuant to the arrangement, and (b) transactions by a dealer as to securities constituting the
whole or a part of an unsold allotment to or subscription by such
dealer as a participant in a distribution of such securities by the issuer
or by or through an underwriter otherwise than pursuant to the
arrangement.
"b. As used in this section, the terms 'security', 'issuer', 'underwriter', and 'dealer' shall have the meanings provided in section 2 of
the Securities Act of 1933, and the term 'Securities Act of 1933' shall
be deemed to refer to such Act as heretofore or hereafter amended.

52 STAT.]

75Tn CONG., 3D SESS.-CH. 575--JUNE 22, 1938

"SEC. 394. The clerk and, in the case of a reference, the referee after
such reference, shall forthwith transmit to the Secretary of the
Treasury copies of"(1) all petitions filed under sections 321 and 322 of this Act;
"(2) all notices given in a proceeding under this chapter;
"(3) all orders dismissing proceedings or directing that bankruptcy
be proceeded with, discharging debtors, closing estates, and setting
aside confirmations;
"(4) all orders appointing receivers or continuing debtors in possession;
"(5) all orders confirming arrangements, together with copies of
such arrangements;
"(6) all orders approving alterations or modifications in arrangements, together with copies of such alterations or modifications;
"(7) all applications for allowances for compensation and expenses,
and the orders making or refusing to make such allowances; and
"(8) such other papers filed in the proceedings as the Secretary of
the Treasury may request or which the court may direct to be transmitted to him.
"Any order fixing the time for confirming an arrangement which
affects claims of the United States shall include a notice to the Secretary of the Treasury of not less than fifteen days.
"SEC. 395. Except as provided in section 396 of this Act, no income
or profit, taxable under any law of the United States or of any State
now in force or which may hereafter be enacted, shall, in respect
to the adjustment of the indebtedness of a debtor in a proceeding
under this chapter, be deemed to have accrued to or to have been
realized by a debtor or a corporation organized or made use of for
effectuating an arrangement under this chapter by reason of a modification in or cancellation in whole or in part of any such indebtedness
in a proceeding under this chapter: Provided, however, That if it shall
be made to appear that the arrangement had for one of its principal
purposes the evasion of any income tax, the exemption provided by
this section shall be disallowed.
"SEC. 39G. In determining the basis of property for any purposes
of any law of the United States or of a State imposing a tax upon
income, the basis of the debtor's property (other than money) or of
such property (other than money) as is transferred to any person
required to use the debtor's basis in whole or in part shall be decreased
by an amount equal to the amount by which the indebtedness of the
debtor, not including accrued interest unpaid and not resulting in a
tax benefit on any income tax return, has been cancelled or reduced
in a proceeding under this chapter. The Commissioner of Internal
Revenue, with the approval of the Secretary of the Treasury, shall
prescribe such regulations as he may deem necessary in order to reflect
such decrease in basis for Federal income tax purposes and otherwise
carry into effect the purposes of this section.
"SEC. 397. Any provision in this chapter to the contrary notwithstanding, all taxes which may be found to be owing to the United
States or any State from a debtor within one year from the date of
the filing of a petition under this chapter, and have not been assessed
prior to the date of the confirmation of an arrangement under this
chapter, and all taxes which may become owing to the United States
or any State from a receiver or trustee of a debtor or from a debtor
in possession, shall be assessed against, may be collected from, and
shall be paid by the debtor or the corporation organized or made use
of for effectuating an arrangement under this chapter: Provided,
however, That the United States or any State may in writing accept

Transmittal of certain papers to Secretary of the Treasury.
Ante, p. 907.

Certain income,
etc., not deemed to
have accrued by reason of modification,
etc., of indebtedness.

Proviso.

If arrangement for
purpose of tax evasion.

Determination of
basis of property for
income tax purposes.

Taxes owing within
one year from filing
petition and not assessed prior to confirmation of arrangement; payment.

Proviso.
Acceptance of provisions dealing with assumption, etc., of tax.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

the provisions of any arrangement dealing with the assumption, settlement, or payment of any such tax.
"ARTICLE XIII-WHEN CHAPTER TAKES ErFCT
chapter
When
takes effect.

30 Stat. 549; 47 Stat.
1467.
11 U.S.C. §30, 201,
202; Supp. III, § 202.

Ante, p. 915.

Chapter XII-Real
Property Arrangements by Persons
Other Than Corporations.
Construction.

Application.

"SEC. 399. (1) On and after the effective date of this amendatory
Act, this chapter shall apply to debtors and their creditors, whether
their rights, claims, and interests of any nature whatsoever have
been acquired or created before or after such date;
"(2) a petition may be filed under this chapter in a proceeding in
bankruptcy which is pending on the effective date of this amendatory
Act;
"(3) the provisions of sections 12, 73, and 74, as amended, of the
Act entitled 'An Act to establish a uniform system of bankruptcy
throughout the United States', approved July 1, 1898, shall continue
in full force and effect with respect to proceedings pending under
those sections upon the effective date of this amendatory Act; and
"(4) sections 395 and 396 of this Act shall apply to compositions
and extensions confirmed under sections 12 and 74 before the effective
date of this amendatory Act and to compositions and extensions which
may be confirmed under sections 12 and 74 on and after such effective
date.
"CHAPTER XII-REAL PROPERTY ARRANGEMENTS BY
PERSONS OTHER THAN CORPORATIONS
"ARTICLE I-CONSTRuCTIrON
"SEC. 401. The provisions of this chapter shall apply exclusively

to proceedings under this chapter.

Erons.i
A.4te, p. 867.

Po, p.918.

"SEC. 402. The provisions of chapters I to VII, inclusive, of this
Act shall, insofar as they are not inconsistent or in conflict with the
provisions of this chapter, apply to proceedings under this chapter:
Provided,however, That subdivision n of section 57 shall not apply in
such proceedings unless an order shall be entered directing that bankruptcy be proceeded with pursuant to the provisions of chapters I to
VII, inclusive. For the purposes of such application, provisions
relating to 'bankrupts' shall be deemed to relate also to 'debtors', and
'bankruptcy proceedings' or 'proceedings in bankruptcy' shall be
deemed to include proceedings under this chapter. For the purposes
of such application the date of the filing of the petition in bankruptcy shall be taken to be the date of the filing of an original petition
under section 422 of this Act, and the date of adjudication shall be
taken to be the date of the filing of the petition under section 421
or 422 of this Act.
"ARTICLE II-DEFINITIONS

Definitions.
"Arrangement."

"SEC. 406. For the purposes of this chapter, unless inconsistent
with the context"(1) 'arrangement' shall mean any plan which has for its primary

purpose the alteration or modification of the rights of creditors or of
"Claims."
Ane, p. 873.
"Consideiation."

any class of them, holding debts secured by real property or a chattel
real of which the debtor is the legal or equitable owner;
"(2) 'claims' shall include all claims of whatever character, against
a debtor or his property, whether or not such claims are provable
under section 63 of this Act and whether secured or unsecured, liqui-

dated or unliquidated, fixed or contingent;
"(3) 'consideration' shall include evidences of indebtedness either
secured or unsecured, stock and certificates of beneficial interest
therein, and certificates of beneficial interest in property;

52 STAT.]

917

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"(4) 'executory contracts' shall include unexpired leases of real
property;
'(5) 'creditors' shall mean the holders of claims;
"(6) 'debtor' shall mean a person, other than a corporation as
defined in this Act, who could become a bankrupt under section 4 of
this Act, who files a petition under this chapter and who is the legal
or equitable owner of real property or a chattel real which is security
for any debt, but shall not include a person whose only interest in
property proposed to be dealt with by the arrangement is a right to
redeem such property from a sale had before the filing of such
petition;
"(7) 'debts' shall include all claims;
"(8) 'indenture trustee' shall mean a trustee under a mortgage,
deed of trust, or indenture, pursuant to which there are securities
outstanding, other than voting trust certificates, constituting debts
against a debtor or debts secured by a lien upon real property or
a chattel real of which such debtor is the legal or equitable owner;
and
"(9) 'petition' shall mean a petition filed under this chapter
proposing an arrangement by a debtor.
"SEC. 407. Creditors or any class thereof shall be deemed to be
'affected' by an arrangement only if their or its interest shall be
materially and adversely affected thereby. In the event of controversy, the court shall after hearing upon notice summarily determine
whether any creditor or class is so affected.
"ARTICLE

III--JURISDICTION, POWERs, AND DUTIES OF T'E

"Executory
tracts."

c on -

"Creditors."
"Debtor."
Ante, p. 845.

"Debts."
"Indenture truste, "

"Petition."
Creditors "affected"
by an arrangement.

COURT

"SEC. 411. Where not inconsistent with the provisions of this
chapter, the court in which the petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and
his property, wherever located.
"SEC. 412. Where not inconsistent with the provisions of this
chapter, the jurisdiction, powers, and duties of the court shall be
the same"(1) where a petition is filed under section 421 of this Act, as if a
decree of adjudication had been entered in the bankruptcy proceeding at the time the petition under this chapter was filed; and
"(2) where a petition is filed under section 422 of this Act, as
if a voluntary petition for adjudication in bankruptcy had been
filed and a decree of adjudication bad been entered at the time the
petition under this chapter was filed.
"SEC. 413. Upon the filing of a petition, the court may, in addition to the jurisdiction, powers, and duties hereinabove and elsewhere in this chapter conferred and imposed upon it"(1) permit the rejection of executory contracts of the debtor,
upon notice to the parties to such contracts and to such other parties
in interest as the court may designate;
"(2) upon such notice as the court may prescribe and upon cause
shown, authorize the trustee or debtor in possession to lease or sell
any property of the debtor, whether real or personal, upon such
terms and conditions as the court may approve;
"(3) whenever under this chapter the court is required or permitted to fix a time for any purpose, the court may upon cause
shown extend such time.
"SEC. 414. The court may, in addition to the relief provided by
section 11 of this Act and elsewhere under this chapter, enjoin or
stay until final decree the commencement or continuation of suits
against a debtor and may, upon notice for cause shown, enjoin or

Jurisdiction, powers,
and duties of court.

Post, p. 918.

Post, p. 918.

Power to enjoin or
stay certain suits.
Ante, p. 849.

918

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Designation of time,
form, etc., of giving
notice.

Jurisdiction of appellate courts.

[52 STAT.

stay until final decree any act or the commencement or continuation
of any proceeding to enforce any lien upon any property of a debtor.
"SEC. 415. Whenever notice is to be given under this chapter, the
court shall designate, if not otherwise specified hereunder, the time
within which, the persons to whom, and the form and manner in
which the notice shall be given. Any notice to be given under this
chapter may be combined, whenever feasible, with any other notice
or notices under this chapter.
"SEC. 416. Where not inconsistent with the provisions of this
chapter, the jurisdiction of appellate courts shall be the same as in
a bankruptcy proceeding.

Petition and stay.

"ARTICLE IVT-PETITION AND STAY

Petition by debtor
in pending proceeding.
If no proceeding
pending.

"SEC. 421. A debtor may file a petition under this chapter in a
pending bankruptcy proceeding before his adjudication.
"SEC. 422. If no bankruptcy proceeding is pending, a debtor may
file an original petition under this chapter with the court which
would have jurisdiction of a petition for his adjudication.
"SEC. 423. A petition filed under this chapter shall state that the
debtor is insolvent or unable to pay his debts as they mature, and
shall set forth the terms of the arrangement proposed by him.
"SEC. 424. The petition shall be accompanied by"(1) a statement of the executory contracts of the debtor;
"(2) the schedules and statement of affairs, if not previously filed;
and
"(3) payment to the clerk of the fees, if not already paid, required
to be collected by the clerk under this Act.
"SEc. 425. A petition filed under section 421 of this Act shall not
act as a stay of adjudication or of the administration of the estate,
but the court may, upon application of the debtor and upon notice
to all parties in interest, including the creditors' committee and the
receiver or trustee, if any such has been appointed, grant a stay of
adjudication or of the administration of the estate upon such terms
as may be proper for the protection of the estate.
"SEC. 426. Where a petition is filed under section 422 of this Act,
the court may, upon hearing and after notice to the debtor and to
such other persons as the court may direct, order the debtor to file a
bond or undertaking, with such sureties as may be approved by the
court and in such amount as the court may fix, to indemnify the
estate against subsequent loss in the event of the entry of an order
of adjudication under this chapter.
"SEC. 427. Upon failure of the debtor to comply with such order
for indemnity, as provided in section 426 of this Act, the court may
after hearing upon notice to the debtor, the creditors' committee, if
any has been appointed, and to such other persons as the court may
direct, either adjudge the debtor a bankrupt and direct that bankruptcy be proceeded with pursuant to the provisions of this Act
or dismiss the proceedings under this chapter, as in the opinion of
the court may be in the interest of the creditors.
"SEc. 428. Unless and until otherwise ordered by the court, upon
hearing and after notice to the debtor and all other parties in
interest, the filing of a petition under this chapter shall operate as a
stay of any act or proceeding to enforce any lien upon the real
property or chattel real of a debtor.

Contents of
tion.

peti-

Accompanying papers, etc.

If pending proceeding, effect of petition
on adjudication, etc.

If no pending proceeding, ing of bond,
etc.

Failure to comply
with order for indemnity.

Stay of proceedings
to enforce liens.

Pmroceedings subsequent to filing.
Reference of proceeding to referee.
Appointment of
trustee.

"ARTICLE V-PRocEEDINGS SUBSEQUENT TO FnLNG

OF

PEmTON

"SEc. 431. The judge may refer the proceeding to a referee.
"SEC. 432. The court may, upon the application of any party in
interest, appoint a trustee of the property of the debtor.

52

STAT.]

919

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 433. The court may, upon the application of the trustee or
any party in interest, appoint one or more appraisers who shall prepare and file under oath an inventory and appraisal of the property
of the debtor, and may prescribe how such inventory and appraisal
shall be made.
"SEC. 434. The court shall promptly call a meeting of creditors,
upon at least ten days' notice by mail to the debtor, the creditors, and
other parties in interest.
"SEC. 435. The notice of such meeting of creditors shall be accompanied by a copy of the proposed arrangement, a summary of the
liabilities as shown by the schedules and a summary of the appraisal,
if one has been made, or, if not made, a summary of the assets as
shown by the schedules. Such notice may also name the time for the
filing of the application to confirm the arrangement and the time
for the hearing of the confirmation and of such objections as may
be made to the confirmation.
"SEC. 436. At such meeting, or at any adjournment thereof, the
judge or referee"(1) shall preside;
"(2) may receive proofs of claim and allow or disallow them;
"(3) shall examine the debtor or cause him to be examined and
hear witnesses on any matter relevant to the proceeding; and
"(4) shall receive and determine the written acceptances of creditors on a proposed arrangement, which acceptances may be obtained
before or after the filing of a petition under this chapter.
"SEC. 437. At such meeting, or at any adjournment thereof, the
judge or referee shall, after acceptance of the arrangement"(1) appoint the trustee, if any, or otherwise appoint some other
person, to receive and distribute, subject to the control of the court,
the moneys and consideration, if any, to be deposited, require such
person to give bond with surety to be approved by the court in
such amount as the court shall fix and fix the amount or rate
of such person's compensation;
"(2) fix a time within which there shall be deposited, in such
place as shall be designated by and subject to the order of the court,
the consideration, if any, to be distributed to creditors, the money
necessary to pay the costs, expenses, and compensation allowed by
the court, unless and to the extent that such deposit shall be waived
by the persons entitled to such costs, expenses, and compensation,
and unless and to the extent that the court shall, in its discretion,
allow security to be entered or deposited, upon such terms and conditions as the court may prescribe, in lieu of the deposit of such money;
"(3) fix a time for the filing of the application to confirm the
arrangement and for a hearing on the confirmation thereof and on
any objections to the confirmation, unless such times have already
been named in the notice of the meeting or unless all creditors
affected by the arrangement have accepted it.
"ARTICLE VI-TITLE, RIGOTS, DUTIES,

OFFICand
OFFICERS

AND POWERS OF DEBTOR

AND

"SEC. 441. A trustee, upon his appointment and qualification, shall
be vested with the title of a trustee appointed under section 44 of
this Act.
"SEC. 442. Where not inconsistent with the provisions of this
chapter, a trustee, upon his appointment and qualification, shall be
vested with the rights, be subject to the duties, and exercise the
powers of a trustee appointed under section 44 of this Act, and, if
authorized by the court, shall have and may exercise such additional
rights and powers as a receiver in equity would have if appointed by
a court of the United States for the property of a debtor.

Appointment of appraisers.

Meeting
itors.

of

cred-

Notice of meeting,
accompanying information.

Procedure.

Duties of judge or
referee at meeting, etc.

Title, rigts, duties,

powers of debt
and officers.
Title vested in trustee.
Ante, p. 860.
Rights, duties, etc.,
of trustee.
Ante, p. 860.

920

PUBLIC LAWS--H. 575-JUNE 22, 1938

Duties, etc., of officers of court and
debtor.
Ante, p. 918.

Rights, etc., of
debtor if no trustee
appointed.

Operation of business, etc., of debtor.

Certificates
debtedness.

of in-

Creditors and
claims.
Filing and allowance of proofs of claim.

Division of creditors
into classes.

Hearings for purpose of classification.

Claims by indenture trustee.
Proviso.
Computation of majority for acceptance
of arrangement.
If United States a
creditor.

[52 STAT.

"SEC. 443. Where not inconsistent with the provisions of this chapter, the powers and duties of the officers of the court and the rights,
privileges, and duties of the debtor shall be the same, where a petition is filed under section 421 of this Act, as if a decree of adjudication had been entered in the pending bankruptcy proceeding at the
time the petition under this chapter was filed, or, where a petition is
filed under section 422 of this Act, as if a voluntary petition for
adjudication in bankruptcy had been filed and a decree of adjudication had been entered at the time the petition under this chapter
was filed.
"SEC. 444. Where no trustee is appointed, the debtor shall continue in possession of his property and shall have all the title and
exercise all the powers of a trustee appointed under this chapter,
subject, however, at all times to the control of the court and to such
limitations, restrictions, terms, and conditions as the court may from
time to time prescribe.
"SEC. 445. The trustee or the debtor in possession shall have the
power, upon authorization by and subject to the control of the court,
to operate the business and manage the property of the debtor during
such period, limited or indefinite, as the court may from time to
time fix, and during such operation or management shall file reports
thereof with the court at such intervals as the court may designate.
"SEC. 446. During the pendency of a proceeding for an arrangement, or after the confirmation of the arrangement where the court
has retained jurisdiction, the court may upon cause shown authorize
the trustee or debtor in possession to issue certificates of indebtedness
for cash, property, or other consideration approved by the court,
upon such terms and conditions and with such security and priority
in payment over existing obligations as in the particular case may
be equitable.
"ARTICLE

VII--CREDITORS AND CLAIMS

"SEC. 451. The court shall prescribe the manner in which and fix
a time within which the proofs of claim of creditors may be filed
and allowed. Objections by any party in interest to the allowance
of any such claims shall be heard and summarily determined by the
court.
"SEC. 452. For the purposes of the arrangement and its acceptance, the court may fix the division of creditors into classes according to the nature of their respective claims, and, in the event of
controversy, the court shall after hearing upon notice summarily
determine the controversy.
"SEC. 453. For the purposes of the classification, as provided in
section 452 of this Act, the court shall, if necessary, upon the application of the trustee, the debtor, any creditor, or an indenture trustee,
fix a hearing upon notice to the holders of secured claims, the debtor,
the trustee, and such other persons as the court may designate, to
determine summarily the value of the security and classify as
unsecured the amount in excess of such value.
"SEC. 454. An indenture trustee may file claims for all holders,
known or unknown, of securities issued pursuant to the instrument
under which he is trustee, who have not filed claims: Provided, however, That in computing the majority necessary for the acceptance
of the arrangement only the claims filed by the holders thereof, and
allowed, shall be included.
"SEC. 455. If the United States is a secured or unsecured creditor
of a debtor, the claim thereof shall be deemed to be affected by an
arrangement under this chapter, and the Secretary of the Treasury
is hereby authorized to accept or reject an arrangement in respect
of the claims of the United States. If, in any proceeding under

52 STAT.I

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

this chapter, the United States is a secured or unsecured creditor on
claims for taxes or customs duties (whether or not the United States
has any other interest in, or claim against the debtor, as a secured
or unsecured creditor), no arrangement which does not provide for
the payment thereof shall be confirmed by the court, except upon
the acceptance of a lesser amount by the Secretary of the Treasury
certified to the court: Provided, That if the Secretary of the Treasury
shall fail to accept or reject an arrangement for more than sixty days
after receipt of written notice so to do from the court to which the
arrangement has been proposed, accompanied by a certified copy of
the arrangement, his consent shall be conclusively presumed.
"SEC. 456. A creditor may act in person, by an attorney-at-law, or
by a duly authorized agent or committee and, if he shall act by an
agent or committee, the court shall examine and may disregard any
provision of a power or warrant of attorney, deposit agreement,
trust indenture and committee, or other authorization affecting such
creditor, and enforce an accounting thereunder and restrain the
exercise of any power which it finds to be unfair or not consistent
with public policy.
"SEC. 457. Where not inconsistent with the provisions of this
chapter, the rights, duties, and liabilities of creditors and of all
other persons with respect to the property of the debtor shall be
the same, where a petition is filed under section 421 of this Act, as
if a decree of adjudication had been entered in the pending bankruptcy proceeding at the time the petition under this chapter was
filed, or, where a petition is filed under section 422 of this Act, as
if a voluntary petition for adjudication in bankruptcy had been
filed and a decree of adjudication had been entered at the time the
petition under this chapter was filed.
"SEC. 458. In case an executory contract shall be rejected pursuant
to the provisions of an arrangement or to the permission of the court
given in a proceeding under this chapter, or shall have been rejected
by a receiver in bankruptcy or receiver in equity in a prior pending
proceeding, any person injured by such rejection shall, for the purposes of this chapter and of the arrangement, its acceptance and
confirmation, be deemed a creditor. The claim of the landlord for
injury resulting from the rejection of an unexpired lease of real
estate or for damages or indemnity under a covenant contained in
such lease shall be provable, but shall be limited to an amount not
to exceed the rent, without acceleration, reserved by such lease for
the three years next succeeding the date of the surrender of the
premises to the landlord or the date of reentry of the landlord,
whichever first occurs, whether before or after the filing of the
petition, plus unpaid accrued rent, without acceleration, up to the
date of surrender or reentry: Provided, That the court shall scrutinize
the circumstances of an assignment of a future rent claim and the
amount of the consideration paid for such assignment in determining
the amount of damages allowed the assignee thereof.
"SEC. 459. Upon the entry of an order under the provisions of
this chapter directing that bankruptcy be proceeded with, only
such claims as are provable under section 63 of this Act shall be
allowed, and claims not already filed may be filed within three
months after the first date set for the first meeting of creditors, held
pursuant to section 55 of this Act.

921

Proviso.
Presumption of consent to arrangement.

Right of creditor to
act by attorney, etc.

Rights, duties, and
liabilities of creditors,
etc.
Ante, p. 918.

Rejection of executory contract; status
of injured person.

Limitation on claim
of landlord.

Proviso.
Assignee of future
rent claim, damages.

Order directing
bankruptcy to be proceeded with, claims
allowed.
Ante, p. 873.

.nte, p. 865.

"ARTICLE VIII-PROVISIONS OF ARRANGEMENT

"SEC. 461. An arrangement-

"(1) shall include provisions modifying or altering the rights
of creditors who hold debts secured by real property or a chattel real

Provisions
rangement.

of ar-

922

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

of a debtor, generally or of a class of them, either through the issuance of new securities of any character or otherwise;
"(2) shall provide for the rights of all other creditors of a debtor
who may be affected by the arrangement;
"(3) may provide for treatment of unsecured debts on a parity
one with the other, or for the division of such debts into classes
and the treatment thereof in different ways or upon different terms;
"(4) may provide for the rejection of any executory contract;
"(5) may provide for the continuation of debtor's business and
the management of his property with or without supervision or
control by a trustee or by a committee of creditors or otherwise;
"(6) may provide for payment of debts incurred after the filing
of the petition and during the pendency of the arrangement, in
priority over the debts affected by such arrangement;
"(7) may deal with all or any part of his property;
"(8) shall provide for the payment of all costs and expenses of
administration and other allowances which may be approved or
made by the judge;
" (9) shall specify what debts, if any, are to be paid in cash in full;
"(10) shall specify the creditors or any class of them not to be
affected by the arrangement and the provisions, if any, with respect
to them;
"(11) shall provide for any class of creditors which is affected by
and does not accept the arrangement by the two-thirds majority in
amount required under this chapter, adequate protection for the realization by them of the value of their debts against the property dealt
with by the arrangement and affected by such debts, either, as provided in the arrangement or in the order confirming the arrangement,
(a) by the transfer or sale, or by the retention by the debtor, of such
property subject to such debts; or (b) by a sale of such property
free of such debts, at not less than a fair upset price, and the transfer
of such debts to the proceeds of such sale; or (c) by appraisal and
payment in cash of the value of such debts; or (d) by such method as
will, under and consistent with the circumstances of the particular
case, equitably and fairly provide such protection;
"(12) shall provide adequate means for the execution of the arrangement, which may include: the retention by the debtor of all or any
part of his property; the sale or transfer of all or any part of his
property in trust or to one or more corporations theretofore organized
or thereafter to be organized; the sale of all or any part of his property, either subject to or free from any lien, at not less than a fair
upset price and the distribution of all or any assets, or the proceeds
derived from the sale thereof, among those having an interest therein;
the satisfaction or modification of liens; the cancelation or modification of indentures or of other similar instruments; the curing or
waiver of defaults; the extension of maturity dates and changes in
interest rates and other terms of outstanding securities; the issuance
of trust securities or securities of the debtor or of such corporation
or corporations for cash, for property, in exchange for existing
securities, in satisfaction of debts, or for other appropriate purposes;
and
"(13) may include any other appropriate provisions not inconsistent with the provisions of this chapter.
Propoal,oonft
ation, and commrAationof rrangement.
Proposa by cedut
tumot

dbt

"AwTICLE IX-PROPOSAL, CONFIRMATION, AND CONSUMMATION OF
ARNEN
ARRANGEMENT

"SEC. 466. An arrangement which has been approved by creditors

affected thereby, who hold debts against the property dealt with
therein, amounting to 25 per centum or more of the debts of some

52 STAT.]

7

5TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

class of such creditors and 10 per centum or more of the debts of all
such creditors, may be proposed by any such creditor.
"SEC. 467. An arrangement which at the meeting of creditors, as
provided in section 436 of this Act, has been accepted in writing by
all creditors affected thereby, whether or not their claims have been
proved, shall be confirmed by the court when there shall have been
made the deposit required under this chapter and under the arrangement, and if the court is satisfied that the arrangement and its acceptance are in good faith and have not been made or procured by any
means, promises, or acts forbidden by this Act.
"SEC. 468. If an arrangement has not been so accepted, an application for the confirmation of an arrangement may be filed with the
court within such time as the court shall have fixed in the notice of
such meeting, or at or after such meeting and after, but not before"(1) it has been accepted in writing by the creditors of each class,
holding two-thirds in amount of the debts of such class affected by the
arrangement proved and allowed before the conclusion of the meeting, or before such other time as may be fixed by the court, exclusive
of creditors or of any class of them who are not affected by the
arrangement or for whom payment or protection has been provided
as prescribed in paragraph (11) of section 461 of this Act; and
"(2) the deposit required under this chapter and under the
arrangement has been made.
"SEC. 469. Alterations or modifications of an arrangement may
be proposed in writing, with leave of court, either before or after its
confirmation, by a debtor, or by any creditor as provided in section
466 of this Act.
"SEC. 470. Unless the court finds that the proposed alteration or
modification does not materially and adversely affect the interest of
any creditor who has not in writing assented thereto, the court shall
adjourn the meeting or, if closed, reopen the meeting, and may enter
an order that any creditor who accepted the arrangement and who
fails to file with the court, within such time as shall be fixed in the
order, his rejection of the altered or modified arrangement, shall be
deemed to have accepted the alteration or modification and the
arrangement so altered or modified, unless the previous acceptance
provides otherwise.
"SEC. 471. At least ten days' notice of the adjourned or reopened
meeting, together with a copy of the order, if entered, and of the
proposed alteration or modification, shall be given to the debtor, the
creditors, and other parties in interest.
"SEC. 472. The court shall confirm an arrangement if satisfied
that"(1) the provisions of this chapter have been complied with;
"(2 it is for the best interests of creditors;
"(3) it is fair and equitable, and feasible;
"(4) the debtor has not been guilty of any of the acts or failed to
perform any of the duties which would be a bar to the discharge of a
bankrupt;
"(5) the proposal and its acceptance are in good faith and have
not been made or procured by any means, promises, or acts forbidden
by this Act; and
"(6) all payments made or promised by the debtor, by any person
issuing securities or acquiring property under the arrangement or by
any other person, for services and for costs and expenses in, or in
connection with, the proceeding or in connection with and incident
to the arrangement, have been fully disclosed to the court and are
reasonable, or, if to be fixed after confirmation of the arrangement,
will be subject to the approval of the court.

923

Arrangement accepted at meeting of
creditors, confirmation.
Ante, p. 919.

If arrangement not
accepted, application
for confirmation.

Proposals for alterations or modifications.

Presumption of acceptance by creditor.

IAlIgth of tilime
notice.

f

Findings hy Curt;

conflrrnation.

924
Effect of confirmation of arrangement.

Proviso.
Objections to debts.
Transfer of property
upon confirmation;
freedom from debts.

Exception.

Execution of instruments to effect retention or transfer of
property.

Discharge of debtor.

Ante, p. 851.
Final decree.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

"SEC. 473. Upon confirmation of an arrangement"(1) the arrangement and its provisions shall be binding upon
the debtor, upon any person issuing securities or acquiring property
under the arrangement, and upon all creditors of the debtor, whether
or not they are affected by the arrangement or have accepted it or
have filed their claims, and whether or not their claims have been
scheduled or allowed and are allowable;
"(2) the debtor, and any corporation or trust organized or to be
organized for the purpose of carrying out the arrangement, shall
comply with the provisions of the arrangement and with all the
orders of the court relative thereto and shall take all action necessary to carry out the arrangement"(3) distribution shall be made, in accordance with the provisions
of the arrangement, to the creditors, proofs of whose claims have
been filed prior to the date fixed by the court and are allowed, or,
if not so filed, whose claims have been scheduled by the debtor as
fixed debts, liquidated in amount and not disputed: Provided, however, That where such debts are objected to by any party in interest,
the objections shall be heard and summarily determined by the court.
"SEC. 474. Upon confirmation of an arrangement, the property
dealt with by the arrangement, when transferred by the trustee
appointed under this chapter to the debtor, or to a trustee or corporation provided for by the arrangement, or, if no trustee has been
appointed under this chapter when transferred by the debtor to a
trustee or corporation provided for by the arrangement, or when
retained by the debtor, as the case may be, shall be free and clear
of all debts affected by the arrangement, except such debts as may
otherwise be provided for in the arrangement or in the order confirming the arrangement or in the order directing or authorizing the
transfer or retention of such property.
"SEC. 475. The court may direct the debtor, his trustee, any mortgagees, indenture trustees, and other necessary parties to execute
and deliver or to join in the execution and delivery of such instruments as may be requisite to effect a retention or transfer of the
property dealt with by the arrangement which has been confirmed,
and to perform such other acts, including the satisfaction of liens,
as the court may deem necessary for the consummation of the
arrangement.

"SEC. 476. The confirmation of an arrangement shall discharge a
debtor from his debts and liabilities provided for by the arrangement, except as provided in the arrangement or the order confirming
the arrangement, excluding such debts as are not dischargeable
under section 17 of this Act.
"SEc. 477. Upon the consummation of a proceeding under this

chapter, after confirmation of an arrangement, the court shall enter a
final decree discharging the trustee, if any, closing the estate, and
making such provisions, by way of injunction or otherwise, as may
be equitable.
Dismissal and adjudication.

"ARTICLE X-DISMISSAL AND ADJUDICATION

If arrangement
withdrawn, not accepted, etc.; action by
court.

"SEC. 481. If an arrangement is withdrawn or abandoned prior to
its acceptance and no other arrangement is pending, or if no arrangement is accepted at the meeting of creditors or within such further
time as the court may fix, or if the money or other consideration
required to be deposited is not deposited or the application for confirmation is not filed within the time fixed by the court, or if confirmation of the arrangement is refused, the court shall"(1) where the petition was filed under section 421 of this Act
enter an order dismissing the proceeding under this chapter and

Ante, p. 918.

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

925

directing that the bankruptcy be proceeded with pursuant to the
provisions of this Act; or
"(2) where the petition was filed under section 422 of this Act, Antep. 918.
enter an order upon hearing after notice to the debtor, the creditors,
and such other persons as the court may direct, either adjudging the
debtor a bankrupt and directing that bankruptcy be proceeded with
pursuant to the provisions of this Act or dismissing the proceeding
under this chapter, whichever in the opinion of the court may be in
the interest of the creditors.
"SEC. 482. Where the court has retained jurisdiction after the conDefault by debtor
firmation of an arrangement and the debtor defaults in any of the trmination. ation;
terms thereof or the arrangement terminates by reason of the happening of a condition specified in the arrangement, the court upon
hearing after notice to the debtor, the creditors and such other persons
as the court may direct shallAntep. 918.
"(1) where the petition has been filed under section 421 of this
Act, enter an order dismissing the proceeding under this chapter and
adjudging the debtor a bankrupt and directing that the bankruptcy
proceeding be proceeded with pursuant to the provisions of this
Act; or
"(2) where the petition has been filed under section 422 of this Aetp.-18
Act, enter an order either adjudging the debtor a bankrupt and
directing that bankruptcy be proceeded with pursuant to the provisions of this Act or dismissing the proceeding under this chapter,
whichever in the opinion of the court may be in the interest of the
creditors.
"SEC. 483. Upon the entry of an order directing that bankruptcy recting
Entry of or der dibankrulptcy to
be proceeded withbe proceeded ith.
"(1) in the case of a petition filed under section 421 of this Act,
Antep.918.
the bankruptcy proceeding shall be deemed reinstated and thereafter shall be conducted, so far as possible, as if such petition under
this chapter had not been filed; and
"(2) in the case of a petition filed under section 422 of this Act, Ante, p. 18.
the proceeding shall thereafter be conducted, so far as possible,
in the same manner and with like effect as if a voluntary petition
for adjudication had been filed and a decree of adjudication had
been entered on the day when such original petition under this
chapter was filed.
rs and
Wage ecane
"SEC. 484. No adjudication shall be entered under this chapter farmers,
cons(et to
against a wage earner or farmer unless such person shall in writing adjdlication.
filed with the court consent to the adjudication.
"SEC. 485. Upon the dismissal of a proceeding originated by a
Fin decree.
Ante, p. 98.
petition filed under section 422 of this Act, the court shall enter
a final decree discharging the trustee, if any, and closing the estate.
"ARTICLE XI-COMPENSATION AND ALLOWANCES

"SEC. 491. The judge may allow reasonable compensation for
services rendered and reimbursement for proper costs and expenses
incurred in a proceeding under this chapter"(1) by a referee;
"(2) by the trustee and other officers, and the attorneys for any
of them; and
"(3) by the attorney for the debtor.
"Such compensation of referees and trustees shall not be governed
by sections 40 and 48 of this Act.
"SEC. 492. The judge may allow reasonable compensation for
services rendered and reimbursement for proper costs and expenses
incurred in connection with the administration of an estate in a

Compensation and
allowances.

Ante, pp. 859, 861.
Administration
estate.

of

926

PUBLIC LAWS-CH. 575-JUNE 22 1988

[52 STAT.

proceeding under this chapter or in connection with an arrangement
confirmed by the court"(1) by indenture trustees, depositaries, reorganization managers
and committees or representatives of creditors;
"(2) by any other parties in interest; and
"(3) by the attorneys or agents for any of the foregoing.
Petition proceeding,
filed
pending

compesationforservAnte, p. l8.

expenses incurred in such bankruptcy proceeding"(1) by a marshal or receiver, as provided in subdivision f of
section 48 of this Act, and the attorney for any of them;
"(2) by the attorney for the petitioning creditors;
"(3) by the attorney for the bankrupt; and
"(4) by any other persons and the attorneys for any of them entitled under this Act to compensation or reimbursement in such bankruptcy proceeding.

Ante, p.82.

Referee
compensation
for services,
etc.

An,,

P

"SEC. 493. Where a petition is filed under section 421 of this Act,
the judge may allow, if not already allowed, reasonable compensation for services rendered and reimbursement for proper costs and

86.

Dismissal of proceeding or entry of

"SEC. 494. Where a petition is filed under section 421 of this Act,

the judge may allow reasonable compensation for services rendered
and the proper costs and expenses incurred in such bankruptcy proceeding by a referee in bankruptcy. In fixing such compensation,
the judge shall not be restricted by the provisions of section 40 of this
Act.
"SEC. 495. Upon the dismissal of a proceeding under this chapter

ordeadjdpge
or the entry of an order adjudging the debtor a bankrupt, the judge
ance or ervices, etc. may allow reasonable compensation for services rendered and reim-

bursement for proper costs and expenses incurred in such proceeding
prior to such dismissal or order of adjudication by any persons
entitled thereto, as provided in this chapter, and shall make provision for the payment thereof and for the payment of all proper
incurred by officers in such proceedings.
Hearings on appli- costs and expenses
cations
for allowances.
"SEC. 496. eop
The

judge shall fix a time of hearing for the consideration of applications for allowances, of which hearing notice shall
be given to the applicants, the trustee, the debtor, the creditors, the
indenture trustees, and such other persons as the judge may designate,
except that, in the case of allowances for services and reimbursement

in a superseded bankruptcy proceeding, notice need be given only
to the applicants, the debtor, the trustee, and the unsecured creditors,
and may be given to such other classes of creditors or other persons

as "Sthe
judge
may designate.
E
49
.
.
"SEC. 497. In the ccase of the dismissal
of a proceeding under this
taine cmed sation chapter and the entry of an order therein directing that a superseded
ankruptcy proceed- bankruptcy be proceeded with, the compensation allowed by the
Dismissal of pro-

eeedingaleto.er-

judge, in the course of the proceeding under this chapter, to the
referee, marshal, or receiver in the bankruptcy proceeding for services rendered by him in such bankruptcy proceeding shall be deemed
to have been allowed in such bankruptcy proceeding, and such compensation shall be considered in connection with the making of
future allowances therein or shall be readjusted, so as to comply with
the provisions of this Act fixing their compensation in a bankruptcy

g

Appeals from orders
aing or refasing
alo. cefs,

n

oceeding.

"SEC. 498. Appeals may be taken in matters of law or fact from

orders making or refusing to make allowances of compensation or

reimbursement, and may, in the manner and within the time provided
for appeals by this Act, be taken to and allowed by the circuit court
of appeals independently of other appeals in the proceeding, and shall
be summarily heard upon the original papers.

52 STAT.]

927

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"ARTICLE XII-PRIOR PROCEEDINGS

Prior proceedings.

"SEC. 506. A petition may be filed under this chapter notwithstanding the pendency of a prior mortgage foreclosure, equity, or
other proceeding in a court of the United States or of any State in
which a receiver or trustee of all or any part of the property of a
debtor has been appointed or for whose appointment an application
has been made.
"SEC. 507. Such prior proceeding shall be stayed by the filing of a
petition under this chapter. The trustee appointed under this chapter, upon his qualification, or, if a debtor is continued in possession,
the debtor, shall become vested with the rights, if any, of such prior
receiver or trustee in such property and with the right to the immediate possession thereof. The trustee or debtor in possession shall also
have the right to immediate possession of all real property and
chattels real of the debtor in the possession of a trustee under a trust
deed or a mortgagee under a mortgage.
"SEC. 508. The judge shall make such provision as may be equitable
for the protection of the obligations incurred by a receiver or trustee
in such prior proceeding and for the payment of the reasonable
compensation for services rendered and of the proper costs and
expenses incurred therein as may be allowed by the judge.
"SEC. 509. Upon a dismissal of a proceeding under this chapter,
such prior proceeding shall become reinstated and the judge shall
allow the reasonable costs and expenses under this chapter, including
the allowances provided for in article XI of this chapter, and shall
make appropriate provision for the retransfer of such property to
the person or persons entitled thereto upon such terms as may be
equitable for the protection of the obligations incurred in the proceedings under this chapter by the trustee or debtor in possession,
and for the payment of the costs and expenses of the proceedings.

Filing of petition.

"ARTICLE XIII-ARRANGEMENTS, WHEN SET ASIDE OR MODIFIED

"SEC. 511. If, upon the application of parties in interest filed at
any time within six months after an arrangement has been confirmed,
it shall be made to appear that fraud was practiced in the procuring
of such arrangement and that knowledge of such fraud has come
to the petitioners since the confirmation of such arrangement:
"(1) if the debtor has been guilty of or has participated in the
fraud or has had knowledge thereof before the confirmation and
has failed to inform the court of the fraud, the court may set aside
the confirmation and thereupon (a) where the petition was filed under
section 421 of this Act, reinstate the pending bankruptcy proceeding,
adjudge the debtor a bankrupt and direct that the bankruptcy proceeding be proceeded with; or (b) where the petition was filed under
section 422 of this Act, reinstate the proceeding, adjudge the debtor
a bankrupt, and direct that bankruptcy be proceeded with pursuant
to the provisions of this Act; or
"(2) the court may set aside the confirmation, reinstate the proceeding under the petition filed under this chapter, and hear and
determine applications for leave to propose, within such time as the
court may fix, alterations or modifications of the arrangement for
the purpose of correcting the fraud; or
"(3) the court may reinstate the proceeding under the petition filed
under this chapter and modify or alter the arrangement for the
purpose of correcting the fraud, but may not materially modify or
alter the arrangement adversely to the interests of any party who
did not participate in the fraud and who does not consent to such

Stay.

Protection of incurred obligations.

Reinstatement.

Arrangements,
when set aside or
modified.
Fraud; application
by parties in interest.

Powers of court.

Ani, p. 918.

928

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

modification or alteration, or to the prejudice of any innocent person
who, for value, subsequent to the confirmation, acquired rights in
reliance upon it.
General provisions.
Suspension of running of statutes of
limitation, etc.

Creditors of debtor
under mortgage under

"ARTICLE

XIV-GENERAL PROVISIONS

"SEC. 516. All statutes of limitation affecting claims provable
under this chapter and the running of all periods of time prescribed by this Act in respect to the commission of acts of bankruptcy, the recovery of preferences, and the avoidance of liens and
transfers shall be suspended while a proceeding under this chapter
is pending and until it is finally dismissed.
"SEc. 517. Nothing contained in this chapter shall be deemed to

National Housing

affect or apply to the creditors of any debtor under a mortgage

1246.
12 U. s. pc. 17011732; Supp. III, ch. 13.

thereof and supplementary thereto; nor shall its provisions be deemed

8'stat.

Ante, p.8s.

Other secured obli-

insured pursuant to the National Housing Act and Acts amendatory

to allow extension or impairment of any secured obligation held by
Home Owners' Loan Corporation or by any Federal Home Loan
Bank or member thereof.

48

sta.77t

Certain
Ante, p.

e.
securities

920.

Certain
security
transactions exempt-

ed.

Terms defined.
415US.
7C

77b.

Transmittal of certain papers to Secretary of the Treasury.
Ante,p.8.

"SEC. 518. a. The provisions of section 5 of the Securities Act of
1933 shall not apply to"(1) any security issued by a trustee or debtor in possession pursuant to section 446 of this Act; or
"(2) any
transaction in any security issued pursuant to an
arrangement in exchange for securities of or claims against the
debtor or partly in such exchange and partly for cash and/or property, or issued upon exercise of any right to subscribe or conversion
privilege so issued, except (a) transactions by an issuer or an underwriter in connection with a distribution otherwise than pursuant to
the arrangement, and (b) transactions by a dealer as to securities
constituting the whole or a part of an unsold allotment to or subscription by such dealer as a participant in a distribution of such
securities by the issuer or by or through an underwriter otherwise
than pursuant to the arrangement.
"b. As used in this section, the terms 'security', 'issuer', 'underwriter', and 'dealer' shall have the meanings provided in section 2 of
the Securities Act of 1933, and the term 'Securities Act of 1933' shall
be deemed to refer to such Act as heretofore or hereafter amended.
"SEC. 519. The clerk and, in the case of a reference, the referee

after such reference, shall forthwith transmit to the Secretary of
the Treasury copies of"(1) all petitions filed under sections 421 and 422 of this Act;
"(2) all notices given in a proceeding under this chapter;
"(3) all orders dismissing proceedings or directing that bankruptcy be proceeded with, discharging debtors, closing estates and
setting aside confirmations;
"(4 all orders appointing trustees or continuing debtors in
possession;
"(5) all orders determining the time within which claims of
creditors may be filed and allowed and the division of creditors into
classes;
"(6) all orders confirming arrangements, together with copies of
such arrangements;
"(7) all orders approving alterations or modifications in arrangements, together with copies of such alterations or modifications;
"(8) all applications for allowances for compensation and expenses,
and the orders making or refusing to make such allowances; and
"(9) such other papers filed in the proceedings as the Secretary
of the Treasury may request or which the court may direct to be
transmitted to him.

52 STAT.]

929

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"Any order fixing the time for confirming an arrangement which
affects claims of the United States shall include a notice to the
Secretary of the Treasury of not less than thirty days.
"SEC. 520. Except as provided in section 522 of this Act, no income
or profit, taxable under any law of the United States or of any State
now in force or which may hereafter be enacted, shall, in respect to
the adjustment of the indebtedness of a debtor in a proceeding under
this chapter, be deemed to have accrued to or to have been realized
by a debtor, by a trustee provided for in an arrangement under this
chapter, or by a corporation organized or made use of for effectuating
an arrangement under this chapter by reason of a modification in or
cancelation in whole or in part of any of the indebtedness of the
debtor in an arrangement consummated under this chapter.
"SEC. 521. Where it appears that an arrangement has for one of
its principal purposes the evasion of taxes, objection to its confirmation may be made on that ground by the Secretary of the
Treasury or, in the case of a State, by the corresponding official or
other person so authorized. Such objections shall be heard and
determined by the judge, independently of other objections which
may be made to the confirmation of the arrangement, and, if the
judge shall be satisfied that such purpose exists, he shall refuse to
confirm the arrangement.
"SEC. 522. In determining the basis of property for any purposes
of any law of the United States or of a State imposing a tax upon
income, the basis of the debtor's property (other than money) or of
such property (other than money) as is transferred to any person
required to use the debtor's basis in whole or in part shall be
decreased by an amount equal to the amount by which the indebtedness of the debtor, not including accrued interest unpaid and not
resulting in a tax benefit on any income tax return, has been cancelled or reduced in a proceeding under this chapter. The Commissioner of Internal Revenue, with the approval of the Secretary
of the Treasury, shall prescribe such regulations as he may deem
necessary in order to reflect such decrease in basis for Federal income
tax purposes and otherwise carry into effect the purposes of this
section.
"SEC. 523. Any provision in this chapter to the contrary notwithstanding, all taxes which may be found to be owing to the United
States or any State from a debtor within one year from the date of
the filing of a petition under this chapter and have not been assessed
prior to the date of the confirmation of an arrangement under this
chapter, and all taxes which may become owing to the United States
or any State from a trustee of a debtor or from a debtor in possession
shall be assessed against, may be collected from and shall be paid
by the debtor, or the corporation organized or the trustee or corporation made use of for effectuating an arrangement under this chapter:
Provided, however, That the United States or any State may in
writing accept the provisions of any arrangement dealing with the
assumption, settlement, or payment of any such tax.
"ARTICLE XTV-WHEN CHAPTER TAKE

Where arrangement is for purpose of
tax evasion.

Determination of
basis of property for
income tax purposes.

Taxes found owing
within one year of
filing petition, assessmlent and payment.

Proviso.

Settlement, etc.

EFFECr

"SEC. 526. (1) On and after the effective date of this amendatory
Act, this chapter shall apply to debtors and their creditors, whether
their rights, claims, and interests of any nature whatsoever have
been acquired or created before or after such date;
"(2) a petition may be filed under this chapter in a proceeding in
bankruptcy which is pending on such date, and a petition may be
filed under this chapter notwithstanding the pendency on such date
of a proceeding in which a receiver or trustee of all or any part of
36525°-38-59

Certain income,
etc., not deemed to
have accrued by reason of modification,
etc., of indebtedness.

When chapter takes
effect.

930

30 Stat. 544; 47 Stat.
1467.
11 U.S. C. §§201,
202; Supp. III, § 202.

Ante, p. 929.

Chapter XIIIWage Earners' Plans.
Construction.
Application.

Proiso.
Exception.
Ante, p. 882.

Post, p. 931.

Definitions.
"Claims."
Ante, p. 873.

"Creditor."
"Debtor."
"Debts."
"Executory contracts."
"Petition."

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

the property of a debtor has been appointed or for whose appointment application has been made in a court of the United States or of
any State;
"(3) the provisions of sections 73 and 74, as amended, of the Act
entitled 'An Act to establish a uniform system of bankruptcy
throughout the United States', approved July 1, 1898, shall continue
in full force and effect with respect to proceedings pending under
those sections upon the effective date of this amendatory Act; and
"(4) sections 520 and 522 of this Act shall apply to compositions
and extensions confirmed under section 74 before the effective date of
this amendatory Act and to compositions and extensions which may
be confirmed under section 74 on and after such effective date, except
that the exemption provided by section 520 of this Act may be
disallowed if it shall be made to appear that such composition or
extension, or composition and extension, had for one of its principal
purposes the avoidance of income taxes, and except further that
where such composition or extension, or composition and extension
has not been confirmed on or after such effective date, section 521 of
this Act shall apply where practicable and expedient.
"CHAPTER XIII-WAGE EARNERS' PLANS
"ARTICLE I-CONSTRUCTION
"SEC. 601. The provisions of this chapter shall apply exclusively
to proceedings under this chapter.
"SEC. 602. The provisions of chapters I to VII, inclusive, of this

Act shall, insofar as they are not inconsistent or in conflict with the
provisions of this chapter, apply in proceedings under this chapter:
Provided, however, That subsection f of section 70 shall not apply
in such proceedings unless an order shall be entered directing that
bankruptcy be proceeded with pursuant to the provisions of chapters
I to VII, inclusive. For the purposes of such application, provisions
relating to 'bankrupts' shall be deemed to relate also to 'debtors',
and 'bankruptcy proceedings' or 'proceedings in bankruptcy' shall
be deemed to include proceedings under this chapter. For the purposes of such application the date of the filing of the petition in
bankruptcy shall be taken to be the date of the filing of an original
petition under section 622 of this Act, and the date of adjudication
shall be taken to be the date of the filing of the petition under section
621 or 622 of this Act except where an adjudication had previously
been entered.
"ARTICLE II-DEFINITIONS
"SEC. 606. For the purposes of this chapter, unless inconsistent
with the context"(1) 'claims' shall include all claims of whatever character against
the debtor or his property, whether or not provable as debts under
section 63 of this Act and whether secured or unsecured, liquidated
or unliquidated, fixed or contingent, but shall not include claims

secured by estates in real property or chattels real;
"(2) 'creditor' shall mean the holder of any claim;
"(3) 'debtor' shall mean a wage earner who filed a petition under
this chapter;
"(4) 'debts' shall include all claims;
"(5) 'executory contracts' shall include unexpired leases of real
property;
"(6) petition' shall mean a petition filed under this chapter by a
wage earner desiring to effect a plan for a composition or extension
of time for the payment of his debts, or both;

52 STAT.]

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"(7) 'plan' shall mean a plan for a composition or extension, or
both, proposed in a proceeding under this chapter; and
"(8) 'wage earner' shall mean an individual who works for wages,
salary, or hire at a rate of compensation which, when added to all
his other income, does not exceed $3,600 per year.
"SEC. 607. A creditor shall be deemed to be 'affected' by a plan
only if his interest shall be materially and adversely affected thereby.
In the event of controversy, the court shall, after hearing upon notice,
summarily determine whether any creditor is so affected.
"ARTICLE III-JURISDICTION, POWERS, AND DUTIES OF THE COURT

"SEC. 611. Where not inconsistent with the provisions of this chapter, the court in which the petition is filed shall, for the purposes
of this chapter, have exclusive jurisdiction of the debtor and his
property, wherever located, and of his earnings and wages during
the period of consummation of the plan.
"SEC. 612. Where not inconsistent with the provisions of this chapter, the jurisdiction, powers, and duties of the court shall be the
same"(1) where a petition is filed under section 621 of this Act and a
decree of adjudication has not been entered in the pending bankruptcy proceeding, as if a decree of adjudication had been entered
in such bankruptcy proceeding at the time the petition under this
chapter was filed, or
"(2) where a petition is filed under section 622 of this Act, as if a
voluntary petition for adjudication in bankruptcy had been filed and
a decree of adjudication had been entered at the time the petition
under this chapter was filed.
"SEC. 613. Upon the filing of a petition, the court may, in addition to the jurisdiction, powers, and duties hereinabove and elsewhere in this chapter conferred and imposed upon it"(1) permit the rejection of executory contracts of the debtor,
upon notice to the parties to such contracts and to such other parties
in interest as the court may designate;
"(2) extend upon cause shown any time which under this chapter
the court is required or permitted to fix for any purpose.
"SEC. 614. The court may, in addition to the relief provided by
section 11 of this Act and elsewhere under this chapter, enjoin or
stay until final decree the commencement or continuation of suits
other than suits to enforce liens upon the property of a debtor, and
may, upon notice and for cause shown, enjoin or stay until final
decree any act or the commencement or continuation of any proceeding to enforce any lien upon the property of a debtor.
"SEC. 615. Whenever notice is to be given under this chapter, the
court shall designate, if not otherwise specified hereunder, the time
within which, the persons to whom, and the form and manner in
which the notice shall be given. Any notice to be given under this
chapter may be combined, whenever feasible, with any other notice
or notices under this chapter.
"SEC. 616. Where not inconsistent with the provisions of this
chapter, the jurisdiction of appellate courts shall be the same as in
a bankruptcy proceeding.
"ARTIcim

IV-PETITION AND STAY

"SEC. 621. A debtor may file a petition under this chapter in
a pending bankruptcy proceeding either before or after his
adjudication.
"SEC. 622. If no bankruptcy proceeding is pending, a debtor
may file an original petition under this chapter with the court which
would have jurisdiction of a petition for his adjudication.

931
"Plan."
"Wage earner."

Creditor "affeeted"
by a plan.

Jrisdiction, powers,
and duties of court.
Exclusive jurisdiction of debtor and his
property, etc.

Adjudication provisions.

Additional powers,
etc.

Power to enjoin or
stay suits, etc.
Ante, p. 849.

Designation of time,
form, etc., of giving
notice.

Jurisdiction of appellate courts

Petition and stay.
Filing of petition
n pending bankruptey proceeding.
If no pending pro-

aeding.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

932
Contents

of peti-

tion.

Accompanying

pa-

pers, etc.

AnU, pp. 859,864.

or admsainisation.
Bond to indemnify

against

loss

during

stay.

Proceedings subsequent to filing of
petition.

eeference of proceeding to referee.
Meeting
tors.

of

credi-

Procedure.

"SEC. 623. A petition filed under this chapter shall state that the
debtor is insolvent or unable to pay his debts as they mature and
that he desires to effect a composition or an extension, or both, out
of his future earnings or wages.
"SEC. 624. The petition shall be accompanied"(1) by a statement of the executory contracts of the debtor;
"(2) by the schedules and statement of affairs, if not previously
filed; and
"(3) where a petition is filed under section 622 of this Act, by
payment to the clerk of $15 to be distributed, $10 to the referee
and $5 to the clerk in lieu of the fees of $15 and $10 as prescribed

in sections 40 and 52 of this Act.

"SEC. 625. A petition filed under section 621 of this Act shall act
as a stay of adjudication or of administration of the estate.

"SEC. 626. The court may, upon hearing after notice to the debtor

and such other persons as the court may designate, require the
debtor to file, within such time as the court may fix, a bond or
undertaking with such sureties, as may be approved by the court,
or without sureties, as the court may order, and in such amount as
the court may fix, to indemnify the estate against loss thereto or
diminution thereof during the period of such stay. Upon the failure of the debtor to comply with such requirement the proceeding
under this chapter shall be dismissed.
"ARTICLE

V--PRocEEDINGS

SUBSEQUENT

TO FILING

OF PETITION

"SEC 631. The judge may refer the proceeding to a referee.
"SEC. 632. The judge or referee shall promptly call a meeting of
creditors, upon at least ten days' notice by mail to the debtor and his
creditors.
"SEC. 633. At such meeting, or at any adjournment thereof"(1) the judge or referee shall preside, receive proofs of claim,
and allow or disallow them, and examine the debtor or cause him
to be examined and hear witnesses on any matter relevant to the
proceeding;
"(2) the debtor shall submit his plan, and deposit with the referee, if any, such sum, as the referee may require, not to exceed $15,
as indemnity for the expenses of the referee;
"(3) the court shall receive and determine the written acceptances
of creditors on the proposed plan, which acceptances may be obtained
by the debtor before or after the filing of a petition under this
chapter;
"(4) the court shall, if the plan is accepted, appoint a trustee
to receive and distribute, subject to the control of the court, all
moneys to be paid under the plan and shall require such trustee
to give bond with surety to be approved by the court in such amount
as the court shall fix; and
"(5) the court shall fix a time for the filing of the application
to confirm the arrangement and for a hearing on the confirmation
thereof or any objection to the confirmation, unless such times have
already been named in the notice of the meeting or unless all creditors affected by the arrangement have accepted it.
"ARTICLE VI-RIGHTS, DUTIES,

Bights, duties, and
powers of debtor and
offiers.

[52 STAT.

AND POWERS OF DEBTOR AND OFFICEBS

"SEC. 636. Where not inconsistent with the provisions of this chapter, the powers and duties of the officers of the court and the rights,
privileges, and duties of the debtor shall be the same, where a petition
is filed under section 621 of this Act and a decree of adjudication has
not been entered in the pending bankruptcy proceeding, as if a decree

52 STAT.]

933

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

of adjudication had been entered in such bankruptcy proceeding at
the time the petition under this chapter was filed, or, where a petition
is filed under section 622 of this Act, as if a voluntary petition for
adjudication in bankruptcy had been filed and a decree of adjudication had been entered at the time the petition under this chapter was
filed.
"SEC. 637. The allowance of exemptions to a debtor shall be the eAtowance o etorx

same as provided for a bankrupt under this Act, and such exemptions
shall be set aside to the debtor in like manner as provided for a
bankrupt.
"ARTICLE VII-CREDITORS AND CLAIMS

"SEC. 641. Where not inconsistent with the provisions of this chapter, the rights, duties, and liabilities of creditors and of all other

persons with respect to the property of the debtor shall be the same,
where a petition is filed under section 621 of this Act and a decree of
adjudication has not been entered in the pending bankruptcy proceeding, as if a decree of adjudication had been entered in such bankruptcy proceeding at the time the petition under this chapter was
filed, or, where a petition is filed under section 622 of this Act, as if a
voluntary petition for adjudication in bankruptcy had been filed and
a decree of adjudication had been entered at the time the petition

Creditors

claims.

and

Rights, duties, etc.,

of creditors where petitionedin pend mg

931.proceedAnic,
Wherep.no
ing einding.

under this chapter was filed.
tt
"SEC. 642. In case an executory contract shall be rejected pur- torycontract; eus
suant to the provisions of a plan or to the permission of the court of injured party.

given in a proceeding under this chapter, or shall have been rejected
by a trustee or receiver in bankruptcy in a prior pending proceeding,
any person injured by such rejection shall, for the purpose of this
chapter and of the plan, its acceptance and confirmation, be deemed
a creditor.

The claim of the landlord for injury resulting from the oLfmtationon claim

rejection of an unexpired lease of real estate or for damages or
indemnity under a covenant contained in such lease shall be provable,
but shall be limited to an amount not to exceed the rent, without
acceleration, reserved by such lease for the year next succeeding the
date of the surrender of the premises to the landlord or the date
of reentry of the landlord, whichever first occurs, whether before or
after the filing of the petition, plus unpaid accrued rent, without
acceleration, up to the date of surrender or reentry: Provided, That
the court shall scrutinize the circumstances of an assignment of a

Paiso.

rent cliin, damages.

future rent claim and the amount of the consideration paid for such
assignment in determining the amount of damages allowed the
assignee thereof.
of time
"SEC. 643. If the time for filing claims in a pending bankruptcy forExpiration
in
filing claims
proceeding has expired prior to the filing of a petition under this pending proceeding,
on uilc.d
a
chapter, claims provable under section 63 of this Act and not filed
within the time prescribed by subdivision n of section 57 of this Act,

Ant

e, pp. 873, 867.

shall not be allowed in the proceedings or participate in a plan under
this chapter, and shall not be allowed in the bankruptcy proceeding
when reinstated as provided in this chapter.

"SEC. 644. Upon the entry of an order under the provisions of recnt of order dithis chapter directing that bankruptcy be proceeded with, only such ruptcy be proceeded
claims as are provable under section 63 of this Act shall be allowed WAnle, . 8a73wed.
Unfied claims.
and except as provided in section 643 of this Act, claims not already

filed may be filed within three months after the first date set for the

first meeting of creditors, held pursuant to section 55 of this Act, or,

if such date has previously been set, then within three months after
the mailing of notice to creditors of the entry of the order directing
that bankruptcy be proceeded with.

Ate p.865.

PUBLIC LAWS-CH. 575-JUNE 22, 1938

[52 STAT.

"ARTICLE VIII-PROVISIONS OF PLAN
Provisions of plan.

consmmation

plans.

and

Plan accepted at

meeting of creditors.
Aie,

"SEC. 646. A plan under this chapter- "(1) shall include provisions dealing with unsecured debts generally, upon any terms;
"(2) may include provisions dealing with secured debts severally,
upon any terms;
"(3) may provide for priority of payment during the period of
extension as between the secured and unsecured debts affected by
the plan;
"(4) shall include provisions for the submission of future earnings or wages of the debtor to the supervision and control of the
court for the purpose of enforcing the plan;
"(5) shall provide that the court may from time to time during
the period of extension increase or reduce the amount of any of the
installment payments provided by the plan, or extend or shorten the
time for any such payments, where it shall be made to appear, after
hearing upon such notice as the court may designate, that the circumstances of the debtor so warrant or require;
"(6) may include provisions for the rejection of executory contracts of the debtor; and
"(7) may include any other appropriate provisions not inconsistent with this chapter.·
"ARTICLE IX-CONFIRMATION AND CONSUIMATION OF PLANS

SEC. 651. A plan which at the meeting of creditors, as provided
in section 633 of this Act, has been accepted in writing by all creditors
affected thereby, whether or not their claims have been proved,
shall be confirmed by the court when the debtor shall have made

p. 932.

the deposit required under this chapter and under the plan, and if
the court is satisfied that the plan and its acceptance are m good
faith and have not been made or procured by any means, promises
or acts forbidden by this Act.
Plans not aepWd;

ma t o n

oo

Condioti.

uPropoasoalra
for

-

"SEC. 652. If a plan has not been so accepted, an application for

the confirmation of the plan may be filed with the court within
such time as the court shall have fixed in the notice of such meeting, or at or after such meeting and after, but not before'(1) it has been accepted in writing, if unsecured creditors are
affected by the plan, by a majority in number of all such creditors
whose claims have been proved and allowed before the conclusion
of the meeting, which number shall represent a majority in amount
of such claims, and by the secured creditors whose claims are dealt
with by the plan; and
"(2) the debtor has made the deposit of moneys required of him
under this chapter and under the plan.
"SEC. 653. Alterations or modifications of a plan may be proposed
in writing by a debtor, with leave of court, at any time before the

plan is confirmed.
oep

byt'Ecrd'tor.c"

"SEC. 654. Unless the court finds that the proposed alteration or
modification does not materially and adversely affect the interest

of any creditor who has not in writing assented thereto, the court
shall adjourn the meeting or, if closed, reopen the meeting, and
may enter an order that any creditor who accepted the plan and
who fails to file with the court within such reasonable time as shall
be fixed in the order a rejection of the altered or modified plan,
shall be deemed to have accepted the alterations or modifications and
the plan so altered or modified, unless the previous acceptance provides otherwise.

52 STAT.]

935

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"SEC. 655. At least ten days' notice of the adjourned or reopened
meeting, together with a copy of the order, if entered, and of the
proposed alteration or modification, shall be given to the creditors
and other parties in interest.
"SEC. 656. (a) The court shall confirm a plan if satisfied that"(1) the provisions of this chapter have been complied with;
" (2) it is for the best interests of the creditors;
"(3) it is fair and equitable, and feasible;
"(4) the debtor has not been guilty of any of the acts or failed
to perform any of the duties which would be a bar to the discharge
of a bankrupt; and
"(5) the proposal and its acceptance are in good faith and have
not been made or procured by any means, promises, or acts forbidden
by this Act.
"(b) Before confirming any such plan the court shall require proof
from each creditor filing a claim that such claim is free from usury
as defined by the laws of the place where the debt was contracted.
"SEC. 657. Upon confirmation of a plan, the plan and its provisions shall be binding upon the debtor and upon all creditors of the
debtor, whether or not they are affected by the plan or have accepted
it or have filed their claims, and whether or not their claims have
been scheduled or allowed or are allowable.
"SEC. 658. During the period of extension, the court"(1) shall retain jurisdiction of the debtor and his property for
all purposes of the plan and its consummation and shall have supervision and control of any agreement or assignment, provided for in
the plan, in respect to any future earnings or wages of the debtor;
and
"(2) may issue such orders as may be requisite to effectuate the
provisions of the plan, including orders directed to any employer of
the debtor. An order directed to such employer may be enforced
in the manner provided for the enforcement of judgments.
"SEC. 659. In advance of distribution to creditors, there shall first
be paid in full, out of the moneys paid in by or for the debtor,
and the order of payment shall be"(1) the actual and necessary costs and expenses of the referee;
"(2) the actual and necessary costs and expenses of the trustee;
"(3) the commissions to the referee of 1 per centunm, to be computed upon and payable out of the payments actually made by or
for a debtor under the plan, which commissions shall be in addition
to the fee of $10 to be paid to the referee out of the fees deposited
by the debtor with the clerk of the court, and commissions to the
trustee of 5 per centum to be computed upon and payable out of
the payments actually made by or for a debtor under the plan;
"(4) such reasonable fee to the attorney for the debtor as the
court may allow for the professional services actually rendered by
such attorney to the debtor in and in connection with the proceedings
under this chapter;
"(5) in the case of a pending bankruptcy proceeding superseded
by a proceeding under this chapter, the costs, expenses, and fees of
such bankruptcy proceeding; and
" (6) the debts entitled to priority, in the order of priority, as provided by subdivision a of section 64 of this Act.
"SEC. 660. Upon compliance by the debtor with the provisions of
the plan and upon the completion of all payments to be made thereunder, the court shall enter an order discharging the debtor from
all his debts and liabilities provided for by the plan, and all debts
denied participation in the plan by section 643 of this Act, but

Notice to creditors,
etc.

Confirmation; find.
ings by court.

Effect of confirmation.

of court
Powers
during period of extension.

Payments in advance of distribution
to creditors.

Ante, p. 874.
Discharge of debtor.

Ante, p. 933.

936

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Ante, p. 851.
If debtor unable to
complete
payments
within three years.

Ante, p. 933.
Ande, p. 851.
Final decree.

[52 STAT.

excluding debts which are not dischargeable under section 17 of
this Act held by creditors who have not accepted the plan.
"SEc. 661. If at the expiration of three years after the confirmation
of a plan the debtor has not completed his payments thereunder,
the court may nevertheless, upon the application of the debtor and
after hearing upon notice, if satisfied that the failure of the debtor
to complete his payments was due to circumstances for which he
could not be justly held accountable, enter an order discharging the
debtor from all his debts and liabilities provided for by the plan,
and all debts denied participation in the plan by section 643 of this
Act, but excluding debts which are not dischargeable under section
17 of this Act held by creditors who have not accepted the plan.
"SEc. 662. Upon the consummation of a proceeding under this
chapter, as provided either in section 660 or section 661 of this Act,
the court shall enter a final decree discharging the trustee, closing
the estate and making such provision, by way of injunction or otherwise, as may be equitable.

Dismissal and adjudication.

"ARTICLu X-DISMISSAL AND ADJUDIOATION

If an notroposed
in time, not accepted,

"SE. 666. If a plan is not proposed at the meeting of creditors
oor within such further time as the court may fix, or if the plan is
withdrawn or abandoned prior to its acceptance, or if the plan is
not accepted at the meeting of creditors or within such further
time as the court may fix, or if the deposit required under this

etc.

chapter and under the plan is not made or the application for
confirmation is not filed within the time fixed by the court, or if
confirmation of the plan is refused, or if after confirmation a debtor

defaults in any of the terms of the plan, or if the plan terminates by
Disisseal of proAnte, p.931.

Ane, p.931.

Entry

of order

di-

ruptcy be proceeded

Act, enter an order dismissing the proceeding under this chapter
and adjudging the debtor a bankrupt, if not previously so adjudged,
and directing that the bankruptcy be proceeded with pursuant to
the provisions of this Act; or
"(2) where the petition has been filed under section 622 of this
Act, enter an order dismissing the proceeding under this chapter
or, with the consent of the debtor, adjudging him a bankrupt and
directing that bankruptcy be proceeded with pursuant to the
provisions of this Act.
;SEC. 667. Upon the entry of an order directing that bankruptcy
be proceeded with-

"(1) in the case of a petition filed under section 621 of this Act,
the bankruptcy proceeding shall be deemed reinstated and thereafter
shall be conducted, so far as possible, as if such petition under this
chapter had not been filed; or
"(2) in the case of a petition filed under section 622 of this Act,
if an order has been entered adjudging the debtor a bankrupt, as
provided in paragraph (2) of section 666 of this Act, the proceeding
shall thereafter be conducted, so far as possible, in the same manner
and with like effect as if a voluntary petition for adjudication in
bankruptcy had been filed and a decree of adjudication had been

with.

judging

reason of the happening of a condition specified in the plan, the
court shall"(1) where the petition has been filed under section 621 of this

debtor

bank

roptdueing pendenc

entered on the day when the petition under this chapter was filed.
"SE. 668. Except as provided in section 666 of this Act and elsewhere in this chapter, a debtor shall not be adjudged a bankrupt
either in a proceeding under this chapter or in any proceeding insti-

tuted under this Act, during the pendency of a proceeding under
this chapter.

52 STAT.]

937

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

"ARTICLE XI-PLANS, WHEN SET ASIDE OR MODIFIED
"SEC. 671. If, upon the application of parties in interest filed at
any time within six months after a plan has been confirmed, it shall
be made to appear that fraud was practiced in the procuring of such
plan and that knowledge of such fraud has come to the petitioners
since the confirmation of such plan"(1) if the debtor has been guilty of or has participated in the
fraud or has had knowledge thereof before the confirmation and has
failed to inform the court of the fraud, the court may set aside the
confirmation and thereupon (a) where the petition was filed under
section 621 of this Act, reinstate the pending bankruptcy proceeding,
adjudge the debtor a bankrupt, if he has not already been so
adjudged, and direct that the bankrupty proceeding be proceeded
with, or (b) where the petition was filed under section 622 of this
Act, reinstate the proceeding, adjudge the debtor a bankrupt, and
direct that bankruptcy be proceeded with pursuant to the provisions
of this Act; or
"(2) the court may set aside the confirmation, reinstate the proceeding under the petition filed under this chapter, and hear and
determine applications for leave to propose, within such time as the
court may fix, alterations or modifications of the plan for the purpose of correcting the fraud; or
"(3) the court may reinstate the proceeding under the petition
filed under this chapter and modify or alter the plan for the purpose
of correcting the fraud, but may not materially modify or alter the
plan adversely to the interests of any party who did not participate in
the fraud and who does not consent to such modification or alteration, or to the prejudice of any innocent person who, for value, subsequent to the confirmation, acquired rights in reliance upon it.
"ARTICLE XII-GENERAL PROVISIONS

"SEC. 676. All statutes of limitation affecting claims provable
under this chapter and the running of all periods of time prescribed
by this Act in respect to the commission of acts of bankruptcy, the
recovery of preferences and the avoidance of liens and transfers
shall be suspended while a proceeding under this chapter is pending
and until it is finally dismissed.
"SEC. 677. Unless otherwise directed by the court, all notices
required by this chapter may be given by mail to the parties entitled
thereto to their addresses ascertained in the manner prescribed for
other notices in section 58 of this Act.
"SEC. 678. The clerk and, in the case of a reference, the referee
after such reference, shall forthwith transmit to the Secretary of
the Treasury copies of"(1) all petitions filed under sections 621 and 622 of this Act;
"(2) all notices given in a proceeding under this chapter;
"(3) all orders dismissing proceedings or directing that bankruptcy be proceeded with, discharging debtors, closing estates and
setting aside confirmations;
"(4) all orders approving modifications or alterations in plans,
together with copies of such alterations or modifications;
"(5) all orders confirming plans, together with copies of such plans;
"(6) all orders increasing or reducing the amount of installment
payments under plans, and all orders extending or shortening the
time for such payments; and
"(7) such other papers filed in the proceedings as the Secretary of
the Treasury may request or which the court may direct to be transmitted to him.
i So in original.

Plans, when set
aside or modified.
Fraud in procuring;
application by parties in interest.

Powers of court.

Ante, p. 931.

General provisions.
Suspension of running of statutes of
limitation, etc.

Manner
notice.

of giving

Ante, p. 867.
Transmittal of copies of certain papers to
Secretary of the Treasury.
A.ite, p1. 931.

938

PUBLIC LAWS-CH. 575-JUNE 22, 1938

Certain income,
etc., not deemed to
have accrued by reason of modification or
cancelation of indebtedness.

Proviso.
If purpose of plan
evasion of tax.

Taxes found owing
within one year of filing petition, assessment and payment.

Proviso.
Plan for settlement,
etc.

[52 STAT.

"Any order fixing the time for confirming an arrangement which
affects claims of the United States shall include a notice to the Secretary of the Treasury of not less than ten days.
"SEC. 679. No income or profit, taxable under any law of the
United States or of any State now in force or which may hereafter
be enacted, shall, in respect to the adjustment of the indebtedness of a
debtor in a proceeding under this chapter, be deemed to have accrued
to or to have been realized by a debtor by reason of a modification
in or cancelation in whole or in part of any such indebtedness in a
proceeding under this chapter: Provided, however, That if it shall be
made to appear that the plan had for one of its principal purposes the
evasion of any income tax, the exemption provided by this section
shall be disallowed.
"SEC. 680. Any provision in this chapter to the contrary notwithstanding, all taxes which may be found to be owing to the
United States or any State from a debtor within one year from the
date of the filing of a petition under this chapter, and have not been
assessed prior to the date of the confirmation of a plan under this
chapter, and all taxes which may become owing to the United States
or any State from a debtor shall be assessed against, may be collected from, and shall be paid by the debtor: Provided, however,
That the United States or any State may in writing accept the provisions of any plan dealing with the assumption, settlement, or
payment of any such tax.
"ARTICLE XIII-WHREN CHAPTER TAKES EFFECT

When chapter takes
effect.

47 Stat. 1467.
11 U. . C. §C201,
20'2; Supp. 11, 202.

Compositions
extensions.

and

Chapter XIVMaritime Commission Liens.
Maritime Commission.
Appointment as receiver in bankruptcy
proceedings if to the
advantage of parties
in interest, etc.

49 Stat. 1985.
46 U. S. C., Supp.

HI, j 1101.

"SEC. 686. (1) On and after the effective date of this amendatory
Act, this chapter shall apply to debtors and their creditors, whether
their rights, claims, and interests of any nature whatsoever have
been acquired or created before or after such date;
"(2) a petition may be filed under this chapter in a proceeding
in bankruptcy which is pending on the effective date of this
amendatory Act:
"(3) the provisions of sections 73 and 74, as amended, of the Act
entitled 'An Act to establish a uniform system of bankruptcy
throughout the United States', approved July 1, 1898, shall continue
in full force and effect with respect to proceedings pending under
those sections upon the effective date of this amendatory Act;
"(4) section 679 of this Act shall apply to compositions and extensions confirmed under section 74 before the effective date of this
amendatory Act and to compositions and extenscopoions which ma be
confirmed under section 74 on and after such effective date; and
" (5) confirmation of a plan under this chapter shall not be refused
because of a discharge granted or a composition confirmed prior to
the effective date of this amendatory Act."
"CHAPTER XIV-MARITIME COMMISSION LIENS
"SEC. 701. Notwithstanding any provision of law, in any proceeding in a bankruptcy, equity, or admiralty court of the United States
in which a receiver or trustee may be appointed for any corporation
engaged in the operation of one or more vessels of United States
registry between the United States and any foreign country, upon
which the United States holds mortgages, the court upon finding that
it will inure to the advantage of the estate and the parties in interest
and that it will tend to further the purposes of the Merchant Marine
Act, 1936, may constitute and appoint the United States Maritime
Commission as sole trustee or receiver, subject to the directions and
orders of the court, and in any such proceeding the appointment of

52 STAT.

939

75TH CONG., 3D SESS.-CH. 575-JUNE 22, 1938

any person other than the Commission as trustee or receiver shall
become effective upon the ratification thereof by the Commission
without a hearing, unless the Commission shall deem a hearing necessary. In no such proceeding shall the Commission be constituted as
trustee or receiver without its express consent.
"SEC. 702. If

the court, in any such proceeding, is unwilling to

operationofvessels;

permit the trustee or receiver to operate such vessels in such service
pending the termination of such proceeding, without financial aid
from the Government, and the Commission certifies to the court that
the continued operation of such vessels is, in the opinion of the Commission, essential to the foreign commerce of the United States and is
reasonably calculated to carry out the purposes and policy of the
Merchant Marine Act, 1936, as amended, the court may permit the
Commission to operate the vessels subject to the orders of the court
and upon terms decreed by the court sufficient to protect all the parties
in interest, for the account of the trustee or receiver, directly or
through a managing agent or operator employed by the Commission,

if the Commission undertakes to pay all operating losses resulting ingPlo a

opert

from such operation, and comply with the terms imposed by the court,
and such vessel shall be considered to be a vessel of the United States
within the meaning of the Suits in Admiralty Act. The Commission
41 Stat. 525.
46 U. S. 0. if 741shall have no claim against the corporation, its estate, or its assets for 752; Supp. mi
,
745.

the amount of such payments, but the Commission may pay such sums
for depreciation as it deems reasonable and such other sums as the
court may deem just.

The payment of such sums, and compliance

with other terms duly imposed by the court, together with the payment of the operating losses, shall be in satisfaction of all claims
against the Commission on account of the operation of such vessels.
"SEC. 703. No injunction powers vested in the courts of bankruptcy
under the Act entitled 'An Act to establish a uniform system of bankruptcy throughout the United States', approved July 1, 1898, and Acts

Payments
au claims.

deemed

Protection of oova
nmeta mortae.
0
3 Stat. s
u4.

amendatory thereof and supplementary thereto, shall be construed or in.
be deemed to affect or apply to the United States as a creditor under
(
a preferred ship mortgage, as defined in the Ship Mortgage Act,
41 stat 10
0.
1920, as amended, unless the Commission files with the court a written Supp. II, §922.
waiver of the provisions of this section."
SEC. 2. (a) Any farmer who filed a petition under section 75 of the ,barumr;petitioni
Act entitled "An Act to establish a uniform system of bankruptcy 47stt. l47o.
throughout the United States", approved July 1, 1898, as amended,
and in whose case a bankruptcy court has, under subsection (s)
thereof, granted a stay of proceedings may, if the period for which
such stay was granted has expired or is about to expire, make applica-

iiul... 1s (

";2
sayof proeedings
Application for ep-

tea m""

tion to such court for an extension of such stay. If the court finds that
such farmer has substantially complied with the provisions of paragraph (2) of subsection (s) of section 75 of such Act, as amended,
luring the period of such stay, the court may extend the period of
such stay to November 1, 1939.
(b) The second sentence of subsection (b) of section 75 of such Act, micncinition ro'
as amended, is amended to read as follows: "The conciliation commis47 stat. 1470.
sioner shall receive as compensation for his services a fee of $25 for sunppn.usI,
2A n ;
each case submitted to him, to be paid out of the Treasury when the
Ae, p. 84.

conciliation commissioner completes the duties assigned to him by the
court."
SEC. 3. (a) The Act entitled "An Act to establish a uniform system

of bankruptcy throughout the United States", approved July 1, 1898,
as amended by the Act of August 16, 1937 (50 Stat. 653), is hereby
further amended by striking out the heading "Chapter X" before
section 81 of said Act and inserting in lieu thereof "Chapter IX".

Te"tua

50 stat. 3.

ameD d-

940

PUBLIC LAWS-CHS. 575, 576-JUNE 22, 1938

tat.,
S 55Supp.
11 U.
S.
c., &upp.

II,

403.

Partial

completion

or execution of plan

of composition;

effect

of.

Obligationofperson
pro-

econdarilyliable,

vision repealed.

[52 STAT.

83 of such chapter IX is amended by adding at the
(b)
,
. Section
,
end thereof the following new subsection:
"(j)
The
partial completion or execution of any plan of
composi.
.a. Pa
.o
c
p.

tion as outlined in any petition filed under the terms of this Act by
the exchange of new evidences of indebtedness under the plan for
evidences of indebtedness covered by the plan, whether such partial
completion or execution of such plan of composition occurred before
or after the filing of said petition, shall not be construed as limiting
or prohibiting the effect of this Act, and the written consent of the
holders of any securities outstanding as the result of any such partial
completion or execution of any plan of composition shall be included
as consenting creditors to such plan of composition in determining the
percentage of securities affected by such plan of composition."
SEC. 4. Section 76 of the Act entitled "An Act to establish a
uniform system

of bankruptcy

throughout

the United

States",

approved July 1, 1898, as amended, is hereby repealed. Except to
Repeal oinconsist- the extent necessary to give effect to the provisions of section 6 of
nt provisions.
this amendatory Act, all Acts or parts of Acts inconsistent with any
provisions of this amendatory Act are hereby repealed.
Severability.
SEC. 5. SEVERABILITY; HEADINGS.-a. If any provision of this
amendatory Act or the application thereof to any person or circumstances is held invalid, such invalidity shall not affect other provisions or applications of this amendatory Act which can be given
effect without the invalid provision or application, and to this end
the provisions of this amendatory Act are declared to be severable.
Sections and subb. Sections and subdivision headings shall not be taken to govern
divisi"ohedngs
or limit the scope of the sections or subdivisions to which they
relate.
Effect of this
SEC. 6. EFECT OF THIS AMENDATORY ACT.-a. Nothing herein
47 Stat'.

4724.

amendatory At.

contained shall have the effect to release or extinguish any penalty,

forfeiture, or liability incurred under any Act or Acts of which this
Act is amendatory.
Pending
ngs

proceed-

Effective date.

b. Except as otherwise provided in this amendatory Act, the

provisions of this amendatory Act shall govern proceedings so far
as practicable in cases pending when it takes effect; but proceedings
in cases then pending to which the provisions of this amendatory
Act are not applicable shall be disposed of conformably to the provisions of said Act approved July 1, 1898, and the Acts amendatory
thereof and supplementary thereto.
SEC. 7. This amendatory Act shall take effect and be in force on
and after three months from the date of its approval.
Approved, June 22, 1938.
[CHAPTER 576]

Jun 22, 1938
[H. R. 7520]
[Public, No. 6971

AN ACT
For the relief of members of the Navy or Marine Corps who were discharged from
the Navy or Marine Corps during the Spanish-American War, the Philippine
Insurrection, and the Boxer uprising because of minority or misrepresentation
of age.

Be it enacted by the Senate and House of Representatives of the

cNvy or Marine
Members of, dis-

minorigy etcaur o
Spanish-American
War,
etc., deemed

honorably discharged.

United States of America in Congress assembled, That in the admin-

istration of any laws conferring rights, privileges, or benefits upon
honorably discharged members of the military or naval forces of the
United States, their widows and dependent children, a member of the
Navy or Marine Corps who was enlisted between April 21, 1898, and
July 4, 1902, both dates inclusive, and who was discharged for
fraudulent enlistment because of minority or misrepresentation of
age, shall hereafter be held and considered to have been honorably


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