BANKRUPTCY-CORPORATE REORGANIZATION-PUBLICLY HELD SECURITIES AS A TEST OF AVAILABILITY OF RELIEF UNDER CHAPTERS X AND XI OF THE CHANDLER ACT

Chapter X of the amended Bankruptcy Act of 1938 was mainly the product of the investigation by the Securities and Exchange Commission of reorganization practices under the old equity procedure and under section 77B. The chief aim of the sponsors of this new chapter was to preclude the control of reorganization proceedings by "inside" groups, and thereby more adequately protect the interests of investors. Contemporaneously with the overhauling of section 77B, however, other sections of the old Bankruptcy Act were being revised. Among the changes effected, old sections 12 and 74, dealing with extensions and compositions, were remodelled and combined into a new Chapter XI, purporting to comprehend debtor-creditor "arrangements." Significant features of this chapter were the inclusion of corporations among the debtors who might petition for relief, and the absence of provisions for strict judicial control of negotiations between the debtor and its creditors.

It was soon recognized that a large corporation, seeking to avoid a: reorganization under the restricted procedure of Chapter X, might in effect accomplish the same thing under the more lenient rules of Chapter XI. And in three recent cases, this question was presented to the lower federal courts.