Before GOODRICH, STALEY and HASTIE, Circuit Judges.
STALEY, C.J.: These are appeals from an order of the district court for the District of Delaware enforcing certain provisions of a voluntary plan submitted by The United Corporation and approved by the Securities and Exchange Commission under Section 11(e) of the Public Utility Holding Company Act of 1935 ("Act"), 15 U.S.C. § 79, et seq.
We are concerned only with that phase of the district court's order which cancelled outstanding warrants of The United Corporation without compensation to the holders*fn1
Appeals, challenging the cancellation, have been taken to this court by the General Protective Committee for the Holders of Option Warrants of The United Corporation and Alfred A. Biddle (No. 11,645) and by Herbert M. Diamond, et al. (No. 11,627). This opinion covers both appeals*fn2
The United Corporation is a holding company registered under the Public Utility Holding Company Act of 1935, 49 Stat. 803, 15 U.S.C. § 79, et seq., and is, therefore, for the purposes of the Act, subject to the jurisdiction of the Commission. In 1943, the Commission directed that United cease to be a holding company and limit its corporate structure to a single class of common stock. United decided to comply with the Commission direction that it cease to be a holding company by transforming itself into an investment company. By the latter part of 1949, United, with the Commission's approval, had completed various steps in line with its proposed transformation into an investment company. In November, 1949, United submitted a further plan to complete its compliance with the 1943 order. The 1949 plan was amended in July, 1950, following which hearings on the plan were held.After certain modifications (not presently material), the Commission approved the plan which, among other things, provided for the cancellation of outstanding option warrants of The United Corporation, without compensation to the holders*fn3
Since, according to the Commission's order, cancellation was one phase of the plan which was to become effective only after enforcement by an appropriate United States District Court, the present application for enforcement was brought*fn4
Several arguments are advanced in support of the contention that the district court erred in approving and ordering enforcement of the cancellation. The first contention concerns the Commission's authority to approve and order changes in United's capital structure, which authority would extend to the cancellation of the warrants.
The Commission claims that by virtue of Section 11(b) (2)*fn5 of the Act, it has the authority to simplify the capital structure of a registered holding company and its subsidiaries, and since United is a registered holding company, the Commission had jurisdiction to order the cancellation. We think the Commission is correct.
In passing the Public Utility Holding Company Act, Congress was attempting to meet the problems and eliminate the evils that were connected with the public utility holding companies engaged in interstate commerce. To that end, Congress intended to compel the simplification of public-utility holding-company systems, and the elimination of such systems, except under such terms and conditions as were expressly provided in the Act. See Sec. 1(c).
As part of the plan to achieve these results, Congress, in Section 11(b) (1), specified a desideratum that holding-company systems be limited in their operations to a single integrated public-utility system*fn6 Section 11(b) (2) specified a further desideratum, namely, the simplification of the corporate structure of a registered holding company and its subsidiaries*fn7
Compliance with the desired results of Sections 11(b) (1) and 11(b) (2) may be achieved by two routes. One is a procedure authorized in 11(b) (1) and 11(b) (2) whereby the Commission by order may require that designated steps be taken by a registered holding company or a subsidiary. The second method of compliance, under 11(e), is by a voluntary reorganization*fn8 which a registered holding company or a subsidiary proposed under a broad discretion which Congress left to management to determine how to bring their systems into compliance with 11(b) (1) and 11(b) (2). See General Protective Committee v. SEC, 346 U.S. 521, 529 (1954).
United's method of complying with Section 11(b) was by way of proposing a voluntary reorganization. As part of the reorganization, United proposed to become an investment company. This step would necessarily mean that there would be nothing further for United to do so far as Section 11(b) (1) was concerned. Section 11(b) (1) requires limitations in the operations of holding-company systems. Obviously, if United chose to become an investment company, it would be more than satisfying Section 11(b) (1). See General Protective Committee v. SEC, 346 U.S. at 530. Congress certainly did not contemplate that a registered holding company had to remain a holding company forever, the elimination of holding companies having been explicitly mentioned as one of the purposes of the Act. See § 1(c).
The appellants apparently go a step further, however, and argue that becoming an investment company not only satisfies Section 11(b) (1), but also 11(b) (2). Thus, it is said, since becoming an investment company satisfies both 11(b) (1) and 11(b) (2), nothing further can be required of a registered holding company, once it files a plan to become an investment company, so long as it in good faith pursues that end with reasonable expedition. Accordingly, the Commission had no jurisdiction to compel a change in United's capital structure*fn9 We cannot agree with the appellants. Although one of the purposes of the Act was the elimination of holding companies, another purpose was the elimination of evils which had become part of the corporate structure of registered holding companies and their subsidiaries. Becoming an investment company will satisfy Section 11(b) (1), ...