Before MILLER,*fn* GOODRICH, and McLAUGHLIN, Circuit Judges.
In the reorganization of Standard Gas Corporation under the Public Utility Holding Company Act*fn1 a plan which was the resultant of suggestions by the Company's management and further suggestions by the Securities and Exchange Commission was approved, as finally amended, on November 15, 1944. The Commission then brought proceedings pursuant to Section 11(e)*fn2 of the Act in the District Court for the District of Delaware to secure approval of the plan. f*fn3 The plan was a reorganization measure, designed as part of an effort to simplify the general corporate structure of Standard Gas. To the extent that it concerns us, it provided for cancellation of the notes and debentures in the ratio of $304.95 in cash plus $690 worth of stocks*fn4 to be distributed from the Company portfolio plus a market fluctuation differential new fixed at $5.05 (3% maximum) totaling $1,000 for each $1,000 of debt retired.This appeal from the District Court decision*fn5 by the Company and by the Commission has been met by cross-appeals filed by some of the debenture holders.
The questions in order of difficulty and importance are as follows:
(1) The power of the Commission to order distribution in kind to note and debenture holders instead of ordering a sale of corporation assets and paying them in cash.
(2) If the Commission has such power was it properly exercised in this case?Is this a matter on which a District Court and an Appellate Court should exercise an independent judgment or is its function to be limited to determining whether the Commission's action was reasonable under the circumstances.
(3) Exercisability of the call premium on the debentures to be cancelled.
(4) Problem of valuation of the shares proposed to be distributed.
Power to Order Distribution in Kind
The primary question is concerned with the power of the Commission to order distribution in kind rather than cash. Both the Commission and the opposing security holders start with the premise that absent statutory authorization the creditor of a solvent corporation must be paid off in cash. The Commission contends that statutory authority for payment in kind exists. The security holders, of course, disagree, and the District Court is of the same view.
It is clear from the legislative history of the Act that power of reorganization was one of the intended and well recognized means for effectuating the Congressional purpose. On February 6, 1935, a bill was first introduced by Senator Wheeler as S. 1725 in the Senate and by Congressman Rayburn as H.R. 5423, a companion measure in the House. Section 11 of S. 1725 expressly gave the Commission power to order reorganizations, but contained no provision for permitting voluntary plans. A substitute bill, S, 2796, was introduced on May 9, 1935, by the same sponsor. Section 11(e) first appeared in this bill and to meet the standards of Section 11(b) expressly permitted a voluntary plan, "for the divestment of control, securities, or other assets or for the reorganization or dissolution of such company, or any subsidiary company." In the Act as it finally passed this was changed to, "for the divestment of control, securities, or other assets, or for other action by such company or any subsidiary company."
Appellants argue that the change narrowed the former language. It needs no semanticist to be aware that the words "other action" are broader in meaning than the more connotative and precisely denotative words "reorganization or dissolution". Nor need we determine the matter on such meager grounds. The Senate Report (S.Rep. No. 621, 74th Cong., 1st Sess. on S. 2796, p. 33 (1935)) stated: "Subsection (e) expressly authorizes a holding company subject to the approval of the Commission and the court to work out a plan of reorganization to make unnecessary the issuance of an involuntary order for its reorganization by the Commission, and the Commission and the court are authorized to approve any plan so worked out voluntarily by a holding company as the Commission and the court might order under their compulsory powers. * * *"
And Mr. Rayburn in reporting out the final bill (79 Cong. Rec., Part. 13, pp. 14164, 14165) makes clear the enlargement of the Commission's available remedies, "This differs from the Senate provision in that the Commission is to take such steps as it finds necessary to insure this result, whereas the Senate provision requires reorganization or dissolution." Furthermore, the argument contra is as applicable to dissolutions as it is to reorganizations. What voluntary plan could squeeze through so narrow an interpretation? And what becomes of the many 11(e) plans that have won court approval hitherto either as dissolutions or reorganizations?
It is equally clear that in the grant of power to reorganize was included the incidental power to distribute in kind. Thus the Senate Report (S. Rep. 621, 74th Cong., 1st Sess. pp. 32, 33) referring to S. 2796 stated: "Existing holding companies will be obliged [(i) to shed inappropriate affiliates, or (ii) to cease being holding companies] or (iii) to distribute their securities and assets equitably among their security holders.Precedents under the Sherman Antitrust Act and under the Hepburn Act demonstrate that ...