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The original documents are located in Box 79, folder "New York City, November 1975
- July 1976 (6)" of the L. William Seidman Files at the Gerald R. Ford Presidential
Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 79 of the L. William Seidman Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
December 10, 1975
MEMORANDUM FOR:
JIM CONNOR
FROM:
JIM CAVANAUGH
SUBJECT:
President's Letter to Governor Carey
The draft is fine. However, I have suggested
two changes. The change in the second paragraph
is mainly one of perception.
I feel quite strongly, however, about the change
in the first paragraph where I have substituted
"provide" in place of "enable us to supply."
Attachment
GEREAT FORD LIBRARY
THE WHITE HOUSE
WASHINGTON
Dear Hugh:
Thank you for your letter of November 26. It is my judgment
that, under your leadership, New York officials, union and
financial leaders have now initiated a plan which, if effectively
implemented, can return the City to a position of financial
solvency. I am pleased that the Congress, in response to my
request, is moving swiftly to provide a temporary line of
credit to the State of New York to enable us to supply seasonal
financing to New York City.
Much effort has been expended on this problem, and I was
pleased to work with you and others in developing a realistic
approach consistent with the national interest. Although the
steps taken in recent days in Albany and Washington will pro-
vide resources needed to alleviate the City's financial dis-
tress, responsibility to complete the unfinished task of
putting the City's financial affairs in order must continue to
rest in New York.
My compliments to you, Felix Rohatyn and others on your
accomplishments in moving toward a solution of this difficult
matter.
Sincerely,
The Honorable Hugh L. Carey
Governor of New York
Albany, New York 12224
FORD & LIBRARY GERALD
NYC 12/75
A BILL
To authorize the Secretary of the Treasury to provide and
facilitate seasonal financing for the City of New York.
WHEREAS it is necessary for the City of New York to obtain
seasonal financing from time to time because the City's revenues and
expenditures, even when in balance on an annual basis, are not received
and disbursed at equivalent rates throughout the year; and
WHEREAS the Congress finds that at the present time the City
is or may be unable to obtain such seasonal financing from its customary
sources; and
WHEREAS the Congress finds that it is necessary to assure such
seasonal financing, in order that the City of New York may maintain
essential governmental services.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this Act may be
cited as the "New York City Seasonal Financing Act of 1975".
Section 1. Definitions.
The words and phrases used in the Act have the following meanings:
(a) The terms "City" and "State" mean the City and State of
New York, respectively.
(b) The term "Financing Agent" means any agency duly authorized
by State law to act on behalf or in the interest of the City with respect
to the City's financial affairs.
(c) The term "Secretary" means the Secretary of the Treasury.
Section 2. Loans.
(a) Upon written request of the City or a Financing Agent, the
Secretary may make loans to the City or such Financing Agent subject
to the provisions of this Act, provided that in the case of loans to a
Financing Agent, the City and such Agent shall be jointly and severally
liable thereon.
(b) Each such loan shall mature not later than the last day of the
fiscal year of the City in which it was made, and shall bear interest at
an annual rate determined by the Secretary at the time of the loan, based
upon the current average market yield on outstanding marketable obligations
of the United States with remaining periods to maturity comparable to the
maturities of such loans, adjusted to the nearest one-eighth of one
percentum, plus one percentum per annum.
Section 3. Security for Loans.
In connection with any loan under this Act, the Secretary may
require the City and any Financing Agent and, where necessary, the
State, to provide such security as he deems appropriate. The Secretary
may take such steps as are necessary to realize upon any collateral in
which the United States has a security interest pursuant to this section
to enforce any claim the United States may have against the City or any
-2-
Financing Agent pursuant to this Act. Notwithstanding any other
provision of law, the Secretary may withhold any payments from the
United States to the City, either directly or through the State, which
may be or may become due pursuant to any law and offset such
withheld amounts against any claim the Secretary may have against the
City or any Financing Agent pursuant to this Act.
Section 4. Limitations and Criteria.
(a) A loan may be made under this Act only if the Secretary
determines that there is a reasonable prospect of repayment of the loan
in accordance with its terms and conditions. In making the loan, the
Secretary may require such terms and conditions as he may deem
appropriate to insure repayment. The Secretary is authorized, without
regard to Section 8, to agree to any modification, amendment or waiver
of any such term or condition as he deems desirable to protect the
interests of the United States.
(b) At no time shall the outstanding amount of loans hereunder
exceed in the aggregate $2, 300, 000, 000.
(c) No loan shall be provided under this Act unless: (i) the City
and all Financing Agents shall have repaid according to their terms all
prior loans under this Act which have matured, and (ii) the City and
all Financing Agents shall be in compliance with the terms of any such
outstanding loans.
-3-
Section 5. Remedies.
The remedies of the Secretary prescribed in this Act shall be
cumulative and not in limitation of or substitution for any other remedies
available to the Secretary or the United States.
Section 6. Funding.
For the purpose of making any loan or the payment of any expenses
under this Act, the Secretary is authorized to use as a public debt transaction
the proceeds from the sale of any securities issued under the Second Liberty
Bond Act, as amended, and the purposes for which securities may be issued
under that Act are extended to include the making of such loans and payments.
The Secretary is authorized to sell, assign or otherwise transfer any
note or other evidence of any such loan to the Federal Financing Bank and,
in addition to its other powers, such Bank is authorized to purchase, receive,
or otherwise acquire the same.
Section 7. Inspection of Documents.
At any time a request for a loan is pending or a loan is outstanding
under this Act, the Secretary is authorized to inspect and copy all accounts,
books, records, memoranda, correspondence, and other documents of
the City or any Financing Agent relating to its financial affairs.
Section 8. Termination.
The authority of the Secretary to make any loan under this Act
terminates on June 30, 1978. Such termination does not affect the carrying
out of any transaction entered into pursuant to this Act prior to that date,
-4-
or the taking of any action necessary to preserve or protect the interests
of the United States arising out of any loan under this Act.
-5- -
Nye 12/75
SECTION BY SECTION ANALYSIS OF NEW YORK CITY
SEASONAL FINANCING ACT OF 1975
SECTION 1. Definitions. This section defines certain terms
that are used in the bill. The term "Financing Agent" means any
agency authorized by State law to act on behalf of the City with
respect to its financial affairs.
SECTION 2. Loans. This section authorizes the Secretary of
the Treasury to make loans to the City or a Financing Agent,
subject to the provisions of the Act. Loans will mature no later
than the last day of the City's fiscal year in which they were
issued and will bear interest at a rate of one percent over the
cost of the Treasury for comparable borrowings.
SECTION 3. Security for Loans. In connection with any loan,
the Secretary may require the City, any Financing Agent and,
where necessary, the State, to provide such security as he
deems appropriate. The Secretary may take such action as may
be necessary to realize upon any collateral to enforce any claim
the United States may have against the City or any Financing
Agent. Notwithstanding any other provision of law, the Secretary
may withhold any payments owing under any law from the United
States to the City, either directly or through New York State, and
offset such withheld payments against any claim the United States
may have under the Act.
GERALD
SECTION 4. Limitations and Criteria. A loan may be made only
if the Secretary determines that there is reasonable prospect of
repayment. Loans will have such terms and conditions as may be
established by the Secretary to insure repayment. The Secretary
may agree to modify any such term or condition. At no time may
the outstanding loans under the Act exceed in the aggregate $2. 3
billion. No loan will be provided under the Act unless the City
and all Financing Agents have repaid in accordance with their
terms all loans made under the Act which have matured and unless
the City and all Financing Agents are in compliance with the terms
of any such outstanding loans.
SECTION 5. Remedies. This section provides that the remedies
prescribed in the Act are cumulative and not limitations of or
substitutions for any other remedies available to the Secretary
or to the United States.
SECTION 6. Funding. This section provides that the Secretary
of the Treasury may use the proceeds from the sale of securities
under the Second Liberty Bond Act to make any loans under
section 2 or any payment of expenses. The Secretary is also
authorized to sell any note or other evidence of any such loan to
the Federal Financing Bank and such Bank is authorized to purchase
the same.
-2-
SECTION 7. Inspection of Documents. This section authorizes
the Secretary to inspect the books and records of the City and any
Financing Agent in connection with loans under the Act.
SECTION 8. Termination of Authority. The authority of the
Secretary of the Treasury to enter into any new loans under the
Act will terminate on June 30, 1978. Such termination does not
affect the carrying out of any transactions entered into pursuant
to the Act prior to that date or the taking of any action to preserve
or protect the interests of the United States thereunder.
JOBARY
-3- -
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
MEMORANDUM
December 8, 1975
To: Charlie Leppert
From: Ken Klee
Re: Holtzman Amendments to H.R.10624
Here are three sets of Holtzman
amendments to H.R. 10624. The
12/8 draft is the version that
will be offered on the Floor with
the 12/8 fallback offered if the
other set fails.
The 12/8 draft is a revision of the
12/5 draft which we discussed over
the phone.
LIBRARY
Amendment to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 3, line 23, beginning immediately after
"debtedness", strike out all down through "equitable"
on page 4, line 3, and insert in lieu thereof the following:
the payment of interest and principal of which
may be guaranteed by the United States in
accordance with section 99.
FORD i LIBRARY CERALD
12/8
Desjt
Amendment to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 2, line 24, strike out "and".
Page 3, strike out the period in line 5 and insert
in lieu thereof "; and".
Page 3, immediately after line 5, insert the
following new paragraph:
"(10) 'certificate of indebtedness' means certificate
issued under section 82 (b) (2), the payment of
interest and principal of which may be guaranteed
by the United States in accordance with section 99.
FORD & LIBRARY GERALD
Hespital
Dept
Amendments to H.R. 10624, 45 Reported
Offered by Ms. Holtzman
Page 23, immediately after line 8, insert the
following new sections:
"Sec. 99. Certificates of Indebtedness. --
"(a) Certificates of indebtedness permitted by
the court under section 82 (b) (2) shall be issued for such
consideration as is approved by the court, upon such terms
and conditions, and with the highest security and priority
over existing obligations, secured or unsecured, as in
the particular case may be equitable.
" (b) The guarantee fee for any certificate of
indebtedness shall be determined by the court but shall not
exceed 3-1/2 per centum per annum of the total principal
amount outstanding.
"(c) The Secretary of the Treasury shall be given
notice of and shall have the right to appear at any hearing
on the issuance of certificates of indebtedness.
"(d) The value of certificates of indebtedness
outstanding in a particular case at any one time shall not
exceed $2 billion, and the maturity of any certificate of
indebtedness issued under this chapter shall not exceed
one year.
GERALD FORD LIBRARY
- 2 -
"(e) If the court finds that any or all certificates
of indebtedness in a particular case can be sold without
a guarantee by the United States, the court may permit the
issuance of such certificates without such guarantee. The
limitations and requirements imposed by subsections (b),
(c) and (d) shall not apply to such unguaranteed certificates.
"Sec. 99a. Appropriations. -- There are authorized
to be appropriated such sums as may be necessary from time
to time for payments required as a consequence of the guarantee
under this chapter of any certificate of indebtedness.
Page 23, line 9, strike out "99" and insert in lieu
thereof "100"
FORD is LIBRARY GERALD
12/8
Amendments to H.R. 10624, As Reported
Offered by Hs. Holtzman
Page 2, line 24, strike out "and".
Page 3, strike out the period in line 5 and insert
in lieu thereof "; and". .
Page 3, immediately after line 5, insert the following
new paragraph:
"(10) 'certificate of indebtedness' means certificate
issued under section 82 (b) (2), which constitutes a
bill or note of the issuing county, district, political
subdivision, or municipality for the purposes of
12 U.S.C. § 355.
FORD & LIBRARY 076839
Amendments to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 23, immediately after line 8, insert the
following new section:
"Sec. 99. Certificates of Indebtedness. --
Certificates of indebtedness permitted by the court under
section 82 (b) (2) shall constitute the bills or notes of
the issuing county, district, political subdivision, or
municipality for the purposes of 12 U.S.C. s 355.
Page 23, line 9, strike out "99" and insert in
lieu thereof "100".
FORD & LIBRARY GERALD
THE WHITE HOUSE
WASHINGTON
December 9, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
has
SUBJECT:
Holtzman Amendments to Bankruptcy Act
The EPB Executive Committee, the Domestic Council, and the
Counsel's Office have reviewed and unanimously oppose a
proposed amendment to the Bankruptcy Act by Representative
Holtzman which provides for Federal guarantees of certifi-
cates of indebtedness authorized by a Bankruptcy Court.
Insofar as New York City is concerned, the new Seasonal Finan-
cing Act makes this provision unnecessary. The loans, under
the new Act, are available whether or not the City is in bank-
ruptcy. We are also informed that Chairman Rodino and Repre-
sentative Edwards, Chairman of the Subcommittee oppose the
Holtzman amendment. Strong Administration opposition to the
amendment, we believe, would kill it. In our view, no "veto
signal" is necessary.
SERAL FORD LIGRARY
THE WHITE HOUSE
WASHINGTON
December 9, 1975
MEMORANDUM FOR:
MAX FRIEDERSDORF
FROM:
ED SCHMULTS
C
Attached are some talking points for the bankruptcy bill.
With respect to your call to Jim Buckley, you should
emphasize the point made in the second paragraph that
New York City will still be eligible for seasonal financial
assistance under the recently passed legislation, even
if the City goes into bankruptcy. Bill Seidman is checking
the attached points with the President and will give you
clearance to make the call.
Charlie Leppert should be advised to give the appropriate
signal to the House before the Holtzman amendments are
considered on the Floor, which is anticipated to be about
1 PM today.
cc: Bill Seidman
FORD & LIBRARY GERALD
12/9/75
The President is deeply concerned about certain
provisions of and proposed amendments to H. R. 10624.
H.R. 10624 as reported would allow any governmental unit,
irrespective of size, to use the procedures provided for
thereunder. The President's proposal was carefully restricted
only to cities of 1, 000, 000 and more in population. As has
been pointed out unanimously by the leaders of the municipal
bond industry, enactm ent of the legislation without the
limitation could have serious adverse effects on the market for
state and local bonds.
Of even greater concern are the Holtzman amendments
which would allow the court to guarantee debt certificates in
amounts up to $2 billion for any city in bankruptcy. These
amendments would provide affirmative incentives to bankruptcy
since they would make bankruptcy a condition to substantial
federal assistance. Moreover, the amendments are not necessary
for New York City. If New York City were to require the
protection of bankruptcy, the New York City Seasonal Financing
Assistance Act would provide the necessary funds. The
Administration strongly opposes these amendments.
GERALL
LIBRARY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
MEMORANDUM
December 8, 1975
To: Charlie Leppert
From: Ken Klee
Re: Holtzman Amendments to H.R.10624
Here are three sets of Holtzman
amendments to H.R. 10624. The
12/8 draft is the version that
will be offered on the Floor with
the 12/8 fallback offered if the
other set fails.
The 12/8 draft is a revision of the
12/5 draft which we discussed over
the phone.
GERALD
LIBRARY
of
12/8 Despt
Amendment to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 3, line 23, beginning immediately after
"debtedness", strike out all down through "equitable"
on page 4, line 3, and insert in lieu thereof the following:
the payment of interest and principal of which
may be guaranteed by the United States in
accordance with section 99.
LIBRARY
Deft
Amendment to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 2, line 24, strike out "and".
Page 3, strike out the period in line 5 and insert
in lieu thereof "; and".
Page 3, immediately after line 5, insert the
following new paragraph:
"(10) 'certificate of indebtedness' means certificate
issued under section 82 (b) (2), the payment of
interest and principal of which may be guaranteed
by the United States in accordance with section 99.
12/3 DEPT
Amendments to H.R. H. 10624, As Reported
Offered by Ms. Holtzman
Page 23, immediately after line 8, insert the
following new sections:
"Sec. 99. Certificates of Indebtedness. --
" (a) Certificates of indebtedness permitted by
the court under section 82 (b) (2) shall be issued for such
consideration as is approved by the court, upon such terms
and conditions, and with the highest security and priority
over existing obligations, secured or unsecured, as in
the particular case may be equitable.
" (b) The guarantee fee for any certificate of
indebtedness shall be determined by the court but shall not
exceed 3-1/2 per centum per annum of the total principal
amount outstanding.
" (c) The Secretary of the Treasury shall be given
notice of and shall have the right to appear at any hearing
on the issuance of certificates of indebtedness.
It (d) The value of certificates of indebtedness
outstanding in a particular case at any one time shall not
exceed $2 billion, and the maturity of any certificate of
indebtedness issued under this chapter shall not exceed
one year.
TERARY
- 2 -
" (e) If the court finds that any or all certificates
of indebtedness in a particular case can be sold without
a guarantee by the United States, the court may permit the
issuance of such certificates without such guarantee. The
limitations and requirements imposed by subsections (b),
(c) and (d) shall not apply to such unguaranteed certificates.
"Sec. 99a. Appropriations. -- There are authorized
to be appropriated such sums as may be necessary from time
to time for payments required as a consequence of the guarantee
under this chapter of any certificate of indebtedness.
Page 23, line 9, strike out "99" and insert in lieu
thereof "100"
12/8/2014
Amendments to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 2, line 24, strike out "and".
Page 3, strike out the period in line 5 and insert
in lieu thereof "; and".
Page 3, immediately after line 5, insert the following
new paragraph:
" (10) 'certificate of indebtedness' means certificate
issued under section 82 (b) (2), which constitutes a
bill or note of the issuing county, district, political
subdivision, or municipality for the purposes of
12 U.S.C. § 355.
LIBRARY
12/8-
Amendments to H.R. 10624, As Reported
Offered by Ms. Holtzman
Page 23, immediately after line 8, insert the
following new section:
"Sec. 99. Certificates of Indebtedness. --
Certificates of indebtedness permitted by the court under
section 82 (b) (2) shall constitute the bills or notes of
the issuing county, district, political subdivision, or
municipality for the purposes of 12 U.S.C. § 355.
Page 23, line 9, strike out "99" and insert in
lieu thereof "100".
FORD LiBRARY
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-686
CHAPTER IX BANKRUPTCY REVISION
DECEMBER 1, 1975.-Ordered to be printed
Mr. EDWARDS of California, from the Committee on the Judiciary,
submitted the following
REPORT
together with
SEPARATE AND SUPPLEMENTAL VIEWS
[To accompany H.R. 10624]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 10624) to revise chapter IX of the Bankruptcy Act, having con-
sidered the same, report favorably thereon with amendments and
recommend that the bill as amended do pass.
The amendments are as follows:
Page 4, immediately after line 12, insert the following new
subsection:
(d) DESIGNATION OF JUDGE.-Upon the filing of a petition
the chief judge of the court in the district in which the peti-
tion is filed shall immediately notify the chief judge of the cir-
cuit court of appeals of the circuit in which the district court
is located, who shall designate the judge of the district court
to conduct the proceedings under this chapter.
Page 4, line 19, strike out the colon and all that follows down through
but not including the period in line 25.
Page 5, line 16, strike out "mailing" and insert "publication" in lieu
thereof.
Page 7, line 10, insert "as soon as practicable after the filing of the
petition" after "published" and before the comma.
Page 8, line 17, strike out "of" and insert "to" in lieu thereof.
Page 9, immediately after line 3, insert the following new
subsection :
(g) RECOVERY OF SET-OFF.-Any set-off which relates to a,
contract, debt, or obligation of the petitioner and which set-
off was effected within four months prior to the filing of the
petition, is voidable and recoverable by the petitioner after
57-006
2
3
hearing on notice. The court may require as a condition to
Set-off also may give a creditor an unfair advantage over other credi-
recovery that the petitioner furnish adequate protection for
tors, and could subvert the fair and equitable requirement of section
the realization by the person or entity against whom or which
recovery is sought of the alaim which arises by reason of the
94(b) (1).
The court may require as a condition to recovery that the petitioner
recovery.
provide adequate protection for the realization by the creditor against
Page 14, line 16, strike out "or times".
whom recovery is sought of the claim which arises by reason of the
Page 14, line 20, insert "affected by the plan" after "creditors" and
recovery. That is, a creditor that offset amounts owing prior to the
before the comma.
filing of the petition would have a claim against the petitioner for the
Page 16, beginning in line 22, strike out ", if entitled to accept or
amount of the pre-set-off claim, minus the amount offset. After re-
reject the plan,".
covery, the creditor's claim would increase by the amount of the
Page 21, line 21, strike out the close quotation mark and the period
recovery. The court may require that the petitioner protect the increase
which follows.
in that creditor's claim that arose by reason of the recovery. Such pro-
REASONS FOR AMENDMENTS
tection might be appropriate where the creditor set-off an amount that
was held under a compensating balance agreement that was a term of a
The first amendment specifies that the Chief Judge of the circuit
loan to the petitioner. The compensating balance held by the creditor is
in which the district in which the petition is filed is located shall
essentially collateral for the loan, SO that any recovery of set-off by the
designate the judge that will hear the case. For an especially large
petitioner under this amendment would amount to use by the petitioner
case, this allows greater flexibility in selection of a judge, for the Chief
of its creditors' collateral. Such a result is permitted in reorganization
Judge of the circuit may appoint a judge that is retired, or does not
cases,³ but the courts have generally required that the secured creditor
sit in the district in which the petition was filed. The Chief Judge may
be given some protection for the realization by him of the security or
thus manage the flow of judicial business better, because he may select
its value where the security may, because of its nature, be diminished in
from any judge in the circuit, depending on the volume of business
value or depleted by the petitioner's use. That is the purpose of the
pending in various parts of the circuit.
power granted to the court here. In other cases, such as where the
The second amendment deletes the proviso found in current section
creditor is a creditor by virtue of the purchase of the petitioner's
83(i), which was added in 1946 to overrule Faitoute Iron and Steel
securities on the open market for its own portfolio, and is at the same
Co. V. City of Asbury Park.¹ Though it is desireable to have a proce-
time a depository of the petitioner's funds, recovery of the amount
dure that adjusts the rights of security holders be uniform throughout
offset would not be a recovery of collateral held by the creditor, and
the country, the Committee feels that the Contracts Clause of the Con-
adequate protection of the claim that arises by reason of that recovery
stitution places such close restrictions on what the States may accom-
might be neither required nor appropriate. The decision in each case is
plish through their own composition procedures, that any nonuniform-
left to the sound discretion of the court.
ity that might result from the deletion of the restriction would be
The seventh amendment is purely technical in nature. It deletes "or
minimal and would not outweigh the interests of the States in the man-
times" from the phrase "time or times," as unnecessary, because under
agement of their own fiscal affairs, where they are able to manage
Title I of the United States Code, the singular includes the plural.
effectively without the aid of a Federal municipal adjustments statute.
The eighth amendment delimits the creditors to which the plan and
The third and fourth amendments fix the time within which credi-
any modifications are to be transmitted. The amendment specifies that
tors may object to a petition more precisely than is currently in the
the plan and any modification be transmitted only to creditors who are
bill, and expedite the publishing of notice required by section 85 (d).
affected by the plan. The phrase added by the amendment was inad-
They also expedite the hearing on the petition by preventing any delay
vertently omitted in the drafting of the bill. This conforms the lan-
in the filing of the list of creditors required by section 85 (b) from
guage to section 93, which defines who may object to the plan, and to
delaying a hearing on the petition, and the determination of the pro-
section 92 (d) which specifies creditors whose acceptance is not required
priety of the filing.
for confirmation. The change will result in potentially great savings in
The fifth amendment conforms language to bankruptcy style.
time and in printing and postage costs.
The sixth amendment allows the petitioner to void and to recover
The ninth amendment deletes a redundant and confusing phrase
any set-off effected within four months prior to the filing of the peti-
from section 92(e). No substantive change is intended or accomplished.
tion. The purpose of this amendment is to protect the petitioner from
The final amendment corrects a printing error in the bill.
the creditors' race that often occurs before the filing of a petition. Cred-
itors of the petitioner are put on notice that any set-off which they
PURPOSE OF THE BILL
attempt within four months prior to the filing of the petition is void-
able and recoverable by the petitioner, and are thereby discouraged
The bill amends Chapter IX of the Bankruptcy Act. Chapter IX
from attempting to assert the right of set-off. This subsection accords
provides a procedure for the adjustment of debts of political subdivi-
with section 85 (e) (1), which stays set-off after the filing of the petition.
2 Baker V. Gold Seal Liquors, Inc., 417 U.S. 467 (197).
3 In re Yale Express Systems, Inc., 370 F.2d 433 (2d Cir. 1966) In re Bermer Corp.,
1 316 U.S. 502 (1942).
445 F.2d 367 (2d Cir. 1971). See Regional Rail Reorganization Act Cases, 419 U.S. 102
(1974).
4
5
sion and public agencies and instrumentalities. The procedure is hope-
HISTORY OF THE BILL
lessly archaic and unworkable for all but the smallest entitles. It has
not been amended since 1946 In this time of financial crises of many
The first municipal debt provisions of the Bankruptcy Act were
of the country's cities, most notably New York City, but including
enacted as emergency legislation for the relief of distressed minor
others as well, the need for a workable reorganization procedure is
subdivisions of the states and became effective on May 24, 1934.6
vital.
These provisions were to be operative for a two-year period from
The need for and the purpose of the bill have remained unchanged in
that date but this period was later extended to January 1, 1940, by
the 42 years since the first Municipal Bankruptcy Act was passed. As
an amendment approved April 10, 1936.7 The original enactment con-
the Committee on the Judiciary of the House said then
tained three sections, numbered 78, 79 and 80, and was denominated as
The controlling purpose of the bill is to provide a forum
Chapter IX. This statute, however, was declared unconstitutional in
where distressed cities, counties, and minor political subdivi-
its entirety by the United States Supreme Court in Ashton V. Cameron
sions,
of their own volition, free from all coercion, may
County Water Improvement District No. 1,⁸ and it was to overcome
meet with their creditors under the necessary judicial control
the effect of this decision that an amended statute containing sections
and assistance in an effort to effect an adjustment of their fi-
81, 82, 83, and 84 was added by the Act of August 16, 1937. Originally
nancial matters upon a plan deemed mutually advantageous.⁴
the amended statute constituted Chapter X of the Bankruptcy Act.
This, however, was changed to Chapter IX by the Chandler Act of
The Committee that reported the second Municipal Bankruptcy
Act explained further:
June 22, 1938. 10
Chapter IX was amended again twice in 1940, and once in 1946.
This bill is intended to remove an apparent impasse, and the
It has not been revised or updated since then. The first attempt at
committee believes that it will be welcomed by debtors and
a major revision of Chapter IX came in 1970, when Congress estab-
creditors. When a municipality or a taxing district is insol-
lished the Commission on the Bankruptcy Laws of the United States,
vent, the creditors cannot foreclose their mortgage, or cause
by Public Law 91-354, effective July 24, 1970. Mr. Edwards of Cali-
public property to be sold and the proceeds distributed. They
fornia and Mr. Wiggins were appointed by the Speaker to serve on
must look to the exercise of the taxing power over a period
the Commission. It became operational June 1, 1970, and on July 30,
of years, or, in cooperation with the debtor district, must grant
1973, filed its final report with the President, the Congress and the
extensions. This often involves reorganization of part or all,
Chief Justice of the United States. The result of the Commission's
of the debt structure, and hinges upon agreement by debtor
efforts was introduced by Mr. Edwards and Mr. Wiggins in this
and creditor, or on the existence of a Federal statute which
Congress as H.R. 31. The National Conference of Bankruptcy Judges
may force recalcitrant minority creditors into agreement.
also proposed a major revision of the bankruptcy laws. Their bill
Otherwise the creditors of a municipality or a taxing district
was also introduced by Mr. Edwards and Mr. Wiggins as H.R. 32.
must resort to mandamus proceedings, which have not been
They are both presently before the Subcommittee on Civil and Con-
adequate remedies. In fact, the trend of recent decisions has
stitutional Rights.
been to deny the writ of mandamus wherever sound judicial
The Subcommittee has spent much time over the past two years
discretion justifies denial. Hence, creditors have been unable
studying and developing ways to modernize the Bankruptcy Act.
to obtain unjust advantage, but the problem of the munici-
It expects to complete a major and total revision and report out
pality or taxing district has remained unsolved. Christmas V.
recommendations and a bill to the full Committee in the spring of
City of Asbury Park (78 Fed. (2d) 1003). For an embar-
next year. A part of its work on the total revision of the Bankruptcy
rassed debtor without the remedy afforded by this bill, the
Act has of course been the consideration of a mechanism to manage
only effective recourse is the repeal of its charter by the State
the financial troubles of a municipality.
legislature, in which event creditors are generally left without
It now seemed appropriate, in light of recent developments con-
any remedy. Meriwether V. Garrett (102 U.S. 472, 501).
cerning prospective financial difficulties of some municipalities, to
There is no hope for relief through statutes enacted by the
separate one chapter of the bills dealing with a major revision of
States, because the Constitution forbids the passing of State
the Act and deal with it in advance of the rest. This is the chapter
laws impairing the obligations of existing contracts. There-
on municipal financial adjustments, Chapter IX of the existing Act.
fore, relief must come from Congress, if at all.
The bill, which the Committee reported out on November 18, 1975,
[B Jankruptcy statutes were
intended to provide
by a recorded vote of 32 ayes, 0 nays, is the product of those years
methods whereby insolvent and failing debtors could be
of study on the revision of the Bankruptcy Act in full; of the
relieved of overwhelming burdens and thus be enabled to
thoughts of the Commission on the Bankruptcy Laws of the United
make a new start under favorable conditions.
6 48 Stat. 798.
4 H.R. REP. No. 207, 73d Cong., 1st Sess. 1 (1933).
7 49 Stat. 1198.
5 H.R. REP. No. 517, 75th Cong., 1st Sess. 3-4 (1937).
8 298 U.S. 513 (1936).
9 50 Stat. 654. The former provisions. however, were not repealed. See § 83(h)
10 Additional Provisions, section 3 (a), 52 Stat. 839,
FORD
&
GERALD
LIBRARY
6
States; of the two bills, H.R. 9926 and H.R. 9998, introduced by
The elimination of the requirement also allows Chapter IX relief
Badillo of New York; and the thoughts of the National Conference
to a petitioner who is sorely besieged by its creditors, but who is unable
of Bankruptcy Judges.
to obtain the required consents, perhaps because of recalcitrant bond
holders, or because its creditors are holders of bearer bonds and are
DESCRIPTION OF THE BILL
unknown to the petitioner.
The prior consent requirement worked well when municipal bond
The bill amends Chapter IX of the Bankruptcy Act to provide a
refundings were accomplished with the assistance of the Reconstruc-
workable procedure SO that a municipality of any size that has en-
tion Finance Corporation, which bought a large portion of the out-
countered financial difficulty may work with its creditors to adjust its
standing bonds at the proposed composition rate directly from their
debts. Though the bill amends the Bankruptcy Act and is proposed
holders, and then voted those bonds in favor of the plan. With one
under the bankruptcy power,¹¹ the term "bankruptcy" in its strict sense
entity in control of such a large block of votes, obtaining the 51% prior
is really a misnomer for Chapter IX proceedings.
consent was not difficult. Now, however, the requirement makes little
Chapter IX provides essentially for Federal court supervision of a
sense, and prevents a petitioner from seeking the shelter of a bank-
settlement between the petitioner municipality and a majority of its
ruptcy court while it attempts to negotiate with its creditors a plan of
creditors. A municipal unit cannot liquidate its assets to satisfy its
adjustment. Without that shelter, it is not unlikely that set-offs against
creditors totally and finally. Therefore, the primary purpose of a Chap-
a petitioner or other creditor actions, both judicial and otherwise, or
ter IX is to allow the municipal unit to continue operating while it
actions by its suppliers or employees could prevent the performance of
adjusts or refinancies creditor claims with minimum (and in many
governmental functions. A similar requirement was eliminated from
cases, no) loss to its creditors.
2000 323 of Chapter XI in 1958 because it was found to be "unrealistic
Because Chapter IX is a procedural mechanism, most of the changes
in the proposed revision center on procedural matters. An effort has
and has resulted in either a pro forma compliance by the filing of a
been made throughout the drafting of this statute to follow current law
hastily drafted plan, or the adoption by some judges of extralegal
as much as possible, in order that the bill not be such a departure from
practices permitting the filing of the petition without an accompany-
settled principles that the changes would have an unsettling effect on
ing plan. It takes time and careful study to work out a realistic appro-
priate plan
13
other municipalities and their bondholders.
The bill and the changes proposed from current law may be best
The filing of the petition operates as an automatic stay of all actions,
judicial or otherwise, and of the commencement or continuation of any
understood by a description of what occurs when Chapter IX, as it is
proposed to be amended by the bill, is utilized. This section reviews in
action which seeks to enforce a lien against the petitioner, its property,
summary form the steps taken and the process which occurs after the
its officers, or its inhabitants. This feature is new as well. It gives the
petitioner the breathing spell it may need to get back on its feet finan-
filing of a petition for relief under Chapter IX.
A political subdivision or public agency or instrumentality that is
cially, and the time it needs to negotiate and develop a plan of adjust-
ment with its creditors.
eligible for relief may file a petition for relief under this chapter with
a district court in whose jurisdiction it is located. It is eligible if it is
The filing of a petition also makes unenforceable certain contractual
not prohibited by State law from filing, is insolvent or unable to meet its
provisions, such as those that terminate or modify, or permit a party
debts as they mature, and desires to effect a plan of adjustment of its
to a contract other than the petitioner to terminate or modify, the con-
debts. The requirement of obtaining consent from 51% in amount of
tract for the reason that the petitioner is insolvent or has filed a peti-
its creditors to a plan of adjustment prior to filing a petition for relief
tion for relief under the Bankruptcy Act. These clauses, known gen-
that exists in current law has been eliminated. This is perhaps the most
erally as ipso facto clauses, are often found in the commercial context.
major change from current law. It is reflected in three sections of the
Their existence and enforceability may severely hamper a successful
bill-section 84, which describes eligibility requirements, section 90,
reorganization or arrangement proceeding under Chapter X or XI,
which specifies when a plan must be filed, and section 85(b), which
SO they are made unenforceable in those chapters. It is unknown how
spècifies when the petitioner must file a list of its creditors. The reason
widespread such clauses are in the municipal context, because they are
for the change is two-fold. First, as the Commission on the Bankruptcy
usually included only when there is some suspicion on the part of one
contracting party that the other may become insolvent, and seldom is
Laws stated in its Report
such an occurrence found in the municipal context. Nevertheless, it is
The Commission is of the opinion that [the prior consent]
felt that their existence could be detrimental to a successful municipal
requirement is unwise. It allows the petitioner to submit a
adjustment, and they are made unenforceable in Chapter IX in the
fait accompli to the judge, thereby creating substantial pres-
same way as in Chapter X and XI-only if past defaults in perform-
sure on the judge to confirm the plan. It also gives those who
ance are cured and adequate assurance of future performance is pro-
would seek to depress the market price of the securities of an
vided. This gives protection to the other contracting party, who may
eligible petitioner for improper purposes an excuse for doing
have entered into the contract relying on the petitioner's credit, which,
so.¹²
after a filing, is markedly reduced.
11 U.S. Constitution. Art. I, sec 8. cl. 4.
13 S. REP. No. 2094, 85th Cong., 2d Sess, 3805 (1958) ; see S Collier, Bankruptcy 4.06[6],
12 The Commission on the Bankruntey Laws of the United States, Report, H. Doc. No.
at 390 (14th rev. ed. 1975).
93-137, 93d Cong., 1st Sess. 274 (1973).
8
9
After the filing of the petition, the court must give notice to the
under the bill. That section does not permit Chapter IX to interfere
petitioner's creditors. The notice is by publication, and by mailing to
with or derogate from any State law that regulates the way in which
those creditors whose addresses are known. Notice is also given to the
municipalities may execute this governmental function.
Securities and Exchange Commission, and to the State in which the
The second power the court is given is the power to authorize the
petitioner is located. The notice to the S.E.C. is designed to allow
petitioner to issue certificates of indebtedness, with such priority and
it to participate in an investor protection role. The municipal bond
security as the court determines to be equitable. The process of the
market is sufficiently interstate in character, involving investors in
issuance of certificates of indebtedness is a method which enables a
much the same way that the corporate bond market does, that it is felt
financially embarrassed municipality to enter the private credit market
that the S.E.C. may have an investor protection role to play in munic-
again. The municipality seeks out a private lender who is willing to
ipal adjustments the same as it does in corporate reorganizations.
lend for either a short or long term. Because the petitioner is in a
The state is formally notified for two reasons. First, because the
Chapter IX case, few if any lenders would be willing to lend without
language of the eligibility section, section 84, allows an entity to file
some assurance of payment. The court can supply that assurance by
if the state has not prohibited it; and because withdrawal of State
giving the lender security and priority over existing obligations.
consent at any time will terminate the case, it is felt that the State
Normally, a priority over a previous secured lender might run afoul of
should formally be put on notice SO that it may object if it does not
the Due Process Clause. 14 But as the Supreme Court explained in the
wish its subdivisions to proceed under a Chapter IX. Second, if the
Regional Rail Reorganization Act Cases,15 by facilitating borrowing
State does permit the municipality to proceed, the State is notified
to meet current expenses, the court was actually preserving former
in order that it may participate with the municipality in formulating
secured creditors' collateral by preserving the business as a going
entity. Thus, there was no actual or effective taking of property pro-
and implementing a plan of adjustment in a case in which the peti-
tioner is unable to effect a feasible plan without the State's assistance.
hibited by the Fifth Amendment in giving new security that would
The intent is to make the proceeding a cooperative one with the State
prime the former liens of secured creditors. In the municipal context,
this reasoning is similarly applicable. While the "business" of govern-
involved full. to the extent necessary to make the petitioner's plan success.
ment will continue whether it is insolvent or not, without cash to con-
tinue to provide essential governmental services, the only asset avail-
Any creditor or party in interest may file a complaint within 15
able for the creditors, the municipality's tax base, may be seriously
days after the mailing of notice is completed. The court is directed
eroded by flight of the city's businesses and residents. In any case, the
to hear and determine such complaints, to the extent practicable, in
requirement that the court may only give security and priority to the
a single proceeding, in order to expedite the determination of the
extent equitable incorporates this constitutional requirement, and ren-
propriety of the petition. The grounds for objection to a petition are
ders it immune from constitutional attack.
of section 84.
basically that the petitioner does not meet the eligibility requirement
The powers of the court are subject to a strict limitation-that no
order or decree may in any way interfere with the political or govern-
The bill grants the court two powers which a bankruptcy court
mental powers of the petitioner, the property or revenue of the peti-
has under Chapters X and XI, and under section 77, but which had
tioner, or any income-producing property. The purpose of this limita-
not previously been granted under Chapter IX. The first is the power
tion derives from Ashton V. Cameron Water Improvement District
makes the rejection of an executory contract a breach of the contract
to permit the petitioner to reject executory contracts. Section 88 (c)
No. 1,¹⁶ which held the first Municipal Bankruptcy Act unconstitu-
tional on the basis of infringement of State sovereignty. This limita-
as of the date of the petition, giving rise to a claim for damages. A
tion was included in the second Act, and was relied upon in Bekins V.
landlord's claim for rejection of a lease of real property is limited,
United States,¹ which upheld the second municipal adjustments stat-
however, to the rent reserved under the lease for the year following
ute. The Court quoted extensively from the Committee Report on this
surrender of the premises or reentry of the landlord. In some in-
point:
stances, it will be necessary for the petitioner to renegotiate a contract
In Ashton V. Cameron County District, supra the court
which has been rejected with the approval of the court. Such renego-
considered that the provisions of Chapter IX authorizing the
tiation and formulation of a new contract would, of course, have to
bankruptcy court to entertain proceedings for "readjustment
be in accordance with applicable Federal, State or municipal law. For
of the debts" of "political subdivisions" of a State "might
example, if a collective bargaining agreement had been rejected, appli-
materially restrict its control over its fiscal affairs." and was
cable law may provide a process or procedure for the renegotiation
therefore invalid; that if obligations of States or their politi-
would also be sufficiently similar to a termination of such a contract
and formation of a new collective bargaining agreement. A rejection
cal subdivisions might be subjected to the interference con-
SO that again, applicable law, if any, would apply to the rights of
14 Louisville Joint Stock Land Bank V. Radford. 295 U.S. 555 (1935) declaring. first
the other contracting party between rejection and conclusion of the
Frazier-Lemke Act unconstitutional) Wright V. Vinton Branch of Mountain Bank, 300
U.S. 440 (1937) (upholding second Frazier-Lemke Act) ; Wright V. Union Central Life
bargaining process. For example, if State or other applicable law
Ins. Co., 311 U.S. 273 (1940).
15 419 U.S. 102 (1974).
requires maintenance of terms and conditions of employment exist-
16 298 U.S. 513 (1936).
ing under a terminated or rejected contract, during the interim period,
17 304 U.S. 27 (1938).
that applicable law would apply under section 83 to a contract rejected
H. Rept. 636-75-2
10
11
templated by Chapter IX, they would no longer be "free to
manage their own affairs."
creditors are. The court must also designate classes of creditors whose
In enacting Chapter [IX] the Congress was especially
claims are of substantially similar character and the members of
solicitous to afford no ground for this objection. In the report
which class enjoy substantially similar rights.
of the Committee on the Judiciary of the House of Repre-
The classification is designed to facilitate the negotiation process
sentatives, which was adopted by the Senate Committee on
and the counting of consents to the plan as finally developed. Under
the Judiciary, in dealing with the bill proposing to enact
current law, two restrictions are put on the classification process-that
Chapter [IX], the subject was carefully considered. The
claims that are payable out of the same source be placed in the same
Committee said:
class, and that claims for which security has been pledged be placed
"
in a separate class. This scheme works well for very small entities
"The Committee on the Judiciary is not unmindful of the
whose debt structure is simple. But in the case of a large entity with
sweeping character of the holding of the Supreme Court
many different sorts of notes, bonds, and trade creditors, the power
above referred to [in the Ashton case], and believes that
of the court to classify must be correspondingly expanded and gen-
H.R. 5969 is not invalid or contrary to the reasoning of the
eralized. Indeed, the limits on the present classification scheme could
majority opinion.
actually prevent proper classification by requiring that too many
"The bill here recommended for passage expressly avoids
creditors with different rights be lumped in the same class because
any restriction on the powers of the States or their arms of
their claims are payable out of the same source. What is intended by
government in the exercise of their sovereign rights and
the classification requirements in the bill is the same general rule that
duties. No interference with the fiscal or governmental affairs
applies in Chapters X and XI, expressed in language drafted by the
of a political subdivision is permitted. The taxing agency
Commission on Bankruptcy Laws of the United States.2
itself is the only instrumentality which can seek the benefits
The classification of creditors assists in the negotiation process be-
of the proposed legislation. No involuntary proceedings are
cause it establishes distinct groups with which the petitioner must
allowable, and no control or jurisdiction over that property
negotiate in order to arrive at a plan for the adjustment of its debts.
and those revenues of the petitioning agency necessary for
In a reorganization proceeding, the debtor usually negotiates with
essential governmental purposes is conferred by the bill.
representatives of each class of creditors. To facilitate this purpose,
We are of the opinion that the Committee's points are
the bill specifically authorizes creditors to appear in the case either
well taken and that Chapter [IX] is a valid enactment. The
in person or by duly authorized attorney, agent or committee. For
statute is carefully drawn SO as not to impinge upon the sover-
example, it may be appropriate for bond holders to elect their in-
eignty of the State. The State retains control of its fiscal
denture trustee as their representative if the trustee was not already
affairs.¹⁸
SO designated in the indenture, or for employees who have become
The Supreme Court and the Courts of Appeals have made it very
creditors of the petitioner in their capacity as employees to elect their
clear that the jurisdiction of the court "is strictly limited to dis-
collective bargaining representative as their representative for the
approving or to approving and carrying out a proposed composi-
Chapter IX case, or for pensioners to elect their pension fund trustee
tion. 19 The bill follows these holdings and retains the limitation
as their representative. The creditors' committees that are formed are
on the court's power.
the usual vehicles for representation of creditors both in court and
During this entire process, the petitioner negotiates with its credi-
in the negotiations. The court is permitted to allow compensation of
tors to develop a plan of adjustment of its debts that meets the statu-
these committees for their actual and necessary expenses incurred in
tory requirements. Because of the flexibility of the process under the
connection with the preparation and execution of the plan, and
Bankruptcy Act, there is no limit to the nature of negotiation that
these expenses become administrative expenses under the priorities
the petitioner may undertake, save only that the negotiation be volun-
section, described below.
tary-the court may not order the petitioner to take any action with-
The plan of adjustment must be developed and filed with the court,
out its consent. The petitioner remains in control of its own opera-
either with the petition or within such time as the court, upon its
tions at all times. Of course, if the State has deprived the petitioner
own motion or upon application of the petitioner, determines. The
of certain of its powers, such as under a State law that transfers
time fixed by the court supplies the necessary incentives to both sides
fiscal management to a State board upon the filing of a petition or
in the negotiations to arrive at a mutually agreeable plan within a
upon some other event, then the petitioner is subject to such State
reasonable time. The court, of course, may extend the time, but it
control. Neither the Bankruptcy Act nor the court may interfere
is unlikely that the court would tolerate purposeful delay or bad
with the distribution and delegation of power established by State law.
faith negotiation that resulted in delay. The power to extend would
The court. based on the list of creditors filed by the petitioner and
undoubtedly be exercised only when it could be shown that progress
on proofs of claims filed by creditors, determines who the petitioner's
toward a plan was being made, and more time was necessary to com-
plete the process.
18 United States V. Bekins. 304 U.S. at 49-51 (footnotes omitted).
19 Leco Properties V. R. E. Crummer & Co., 128 F. 2d 110, 113 (5th Cir. 1942).
20 Commission on the Bankruptcy Laws of the United States, Report, H.R. Rep. No.
93-137, 93d Cong., 1st Sess., section 7-303, at 241 (1973).
12
13
As soon as practicable after the plan is filed, the court must trans-
tion cases] by the requirement that two-thirds of the creditors
mit copies of the plan or a summary of the plan, along with any anal-
shall actively consent to the adoption of a reorganization
ysis of the plan, to all of the petitioner's creditors and to all special
plan.
tax payers affected by the plan. The latter category is derived from
This two-thirds requirement is not two-thirds of the total amount of
current law, and is defined in section 81. A special tax payer is one
claims of each class, but is two-thirds in amount of the claims with
whose land is subject to a special tax or assessment that is the sole
source of revenue used to defray the cost of a local improvement, such
respect to which an acceptance or rejection has been filed, not including
as a water, irrigation, levee, or drainage district project. A special tax
claims owned, held or controlled by the petitioner. This computation
method is new.
payer is affected by a plan when the plan proposes to change the as-
sessment on his property disproportionately to any change in the as-
Another group that is not eligible to vote, and is not included in the
sessment of other property in the district. A general change in all as-
computation of the requisite majority, is that group of creditors that
sessments or in the tax rate would not qualify any property holder in
is provided for under section 92(d). Under this section, any creditor or
the district as a special tax payer affected by the plan.
class of creditors (1) whose claims are not affected by the plan, (2) if
The bill gives broad discretion to the petitioner and the court in de-
the plan makes provision for the payment of their claims in cash in
veloping and approving the plan. The plan may include provisions
full, or (3) if provision is made in the plan for the protection of the
modifying or altering the rights of creditors generally, or of any class
interests, claims, or lien of such creditors or class, is not required to con-
of them, secured or unsecured, and may contain such other provisions
sent to the plan. This section provides a method of settling with non-
and agreements not inconsistent with this chapter as the parties may
assenting classes. It exists solely to facilitate confirmation of a plan
where consents cannot be obtained. It appears in both Chapter X and
desire, including the rejection of executory contracts and unexpired
leases. The later provisions are governed by the same standards as
in section 77. It is by no means constitutionally required. However, its
rejection under section (b) (1), described above in terms of the
content is constitutionally required, and is defined by the Fifth Amend-
ment Due Process and Just Compensation Clauses. In basic outline,
powers of the court. The former provisions, modifying or altering the
rights of creditors, refers to the rights of pre-petition creditors, and
the requirement is that the bankruptcy court may not take property
from a creditor without his consent.22 Since the provision is used only
only to their rights as creditors, not any rights they may have in a
different capacity, such as employee, pensioner, or officer or inhabitant
when there is no consent, it must provide for the realization by the
of the petitioner. The rights that may be modified include amount,
creditor of his claim, either in cash in full, or by such other method as
time, and method of payment, and interest on the obligation, and any
will protect his interest, claim or lien against the petitioner or its
other rights that may attach to a debt from the petitioner to the credi-
property. Further definition is difficult. The courts have frequently
tors. For example, if an employee holds bonds of the petitioner, or is
grappled with this language and its counterpart, the fair and equitable
owed back wages, the plan may propose to alter his rights as a creditor,
rule. The bill adopts the language of the current Chapter IX; no
but it could not thereby affect his status as an employee by altering
change is intended from the cases interpreting this standard.
terms or conditions of employment merely because he happened to be
After the filing of the plan and any modifications, the court must set
a creditor of the petitioner. Any such alteration would have to be ac-
a date for a hearing on confirmation of the plan. This date must be
complished through "such other agreement as the parties may desire,"
within a reasonable time after the expiration of the time within which
but this need not and most likely would not be effected through the
the plan many be accepted or rejected. The court notifies all parties en-
plan.
titled to object to the confirmation of the plan of the date of the hear-
The petitioner is also permitted to file modifications of the plan with
ing. These include creditors and special tax payers affected by the
the court at any time before the plan is confirmed. These modifications
plan, and the Securities and Exchange Commission. The addition of
the Securities and Exchange Commission is new, and is derived from
are transmitted to creditors and to special tax payers the same as the
Chapter X. In this time of nationwide trading in municipal bonds, the
plan.
Committee feel that the S.E.C. has a legitimate public investor pro-
After the plan is filed and transmitted, but before the date set for
tection role when the rights of securities holders are sought to be
confirmation, creditors may file written acceptances or rejections of the
altered, even though the S.E.C. does not currently have any role at
plan and any modifications. Only creditors whose claims have not been
the time of issue of the securities. A complaint objecting to confirma-
disallowed and who are materially and adversely affected by the
tion must be filed before ten days prior to the hearing.
plan may file such acceptances or rejections.
After the hearing, the court must confirm the plan if it is satisfied
In order for the plan to be confirmed, it must have been accepted
of the existence of five conditions: (1) the plan must be fair and equit-
by creditors holding at least two-thirds in amount of the claims of
able, feasible, and must not discriminate unfairly in favor of any
each class. The reason for a two-thirds requirement was thoughtfully
creditor or class of creditors; (2) the plan must comply with the pro-
stated in the Jackson Report of Receivership and Bankruptcy Pro-
visions of this chapter; (3) all amounts to be paid by the petitioner or
ceedings in the United States Courts: 21
The necessity for vigilance and activity of creditors in
22 Louisville Joint Stock Land Bank V. Radford, 295 U.S. 555 (1935) (declaring first
Frazier-Lemke Act unconstitutional) Wright V. Vinton Branch of Mountain Bank, 300
ordinary insolvency proceedings is enhanced in [reorganiza-
U.S. 440 (1937) (upholding second Frazier-Lemke Act) Wright V. Union Central Life
Ins. Co., 311 U.S. 273 (1940)) ; Regional Rail Reorganization Act Cases, 419 U.S. 102
(1974).
21 S. Doc. No. 268, 74th Cong., 2d sess. 24-25 (1936).
-14
15
by any person for services and expenses in the case or incident to the
SECTION-BY-SECTION ANALYSIS
plan have been fully disclosed and are reasonable: (4) the offer of the
plan and its acceptance are good faith; (5) the petitioner is not
SECTION 81
prohibited by law from taking any action necessary to be taken by it to
carry out the plan. This has been changed from the current law, which
Paragraph (1), the definition of claims, is derived from Chapter X,
requires that the petitioner be authorized by law to take such action.
section 106(1). This is a change from current Chapter IX in two ways.
The new requirement is more flexible, and allows the petitioner to pro-
First, current Chapter IX uses the term "securities" in Section 82
ceed without, for example, going to the state legislature for specific
rather than "claim" as a vehicle for defining claims against the peti-
authority to perform under the requirements of the plan. The details
tioner. This was appropriate in the context in which current Chapter
of these five requirements are explained in the section-by-section
IX was written-for the aid of revenue districts and small municipali-
analysis. The best interests of creditors test formerly found in Chapter
ties whose debts weer primarily represented by securities. Yet the
IX is deleted as redundant. The fair and equitable rule in effect in-
definition of securities was rather broad as written, and was further
corporates the best interests test, zoth in Chapter X, where it does not
broadened by Poinsett Lumber Co. V. Drainage District No. 7, F. 2d.
appear explicitly, and in Chapter IX, where it has appeared. The bill
270 (8th Cir. 1941), thus rendering any limitation on scope of claims
conforms the Chapter IX language to that in Chapter X.
resulting from the definition in section 82 virtually meaningless. That
If the court is satisfied that the plan meets these five requirements,
supplies the reason for the second change: the adoption of the Chapter
then it must confirm the plan. The confirmation of the plan is binding
X definition of claims. Rather than use the list in section 82, the Com-
on all creditors who had timely notice or actual knowledge of the peti-
mittee has adopted the broad general definition from Chapter X. The
tion or plan, whether or not their claims were allowed, and whether
Chapter X definition is "sweeping in its scope." 6 Collier, Bank-
or not they accepted the plan. The plan operates as a discharge of all
ruptcy § 2.05, at 311 (14th rev. ed. 1975).
the petitioner's debts, except those excepted from discharge under the
plan, and those whose holders had neither timely notice nor actual
Within its purview is any character of a claim against the
knowledge of neither the petition nor the plan.
debtor or its property whether secured or unsecured,
After confirmation, the petitioner is directed to comply with the
liquidated or unliquidated, fixed or contingent.
[I]t
terms of the plan, and to take any action necessary to execute the plan.
should be given a broad construction with respect to claims
Distribution of the consideration deposited by the petitioner with the
and creditors in order to dispose of all liabilities of the
disbursing agent is made in accordance with the terms of the plan to
debtor.
those creditors whose claims have been allowed or deemed allowed, and
6 Collier, supra, at 312-13. It includes as well claims arising out of
to security holders of record as of the date of the order confirming the
the rejection of executory contracts under section 88 (c).
plan whose claims have not been disallowed. If participation under
Paragraph (2) defines court as the court of bankruptcy in which the
the plan requires the deposit of securities or other action, creditors
case is pending, or the judge of that court. This incorporates the de-
must take such action not later than five years after the date of the
finition in section 1(10), which defines court of bankruptcy as the
order confirming the plan. Creditors that do not are barred from
United States District Court, and follows the form of the definition
participation under the plan, and the property that was to be dis-
in section (9), which defines court to include the judge of the court
tributed to them reverts to the petitioner. The court may retain juris-
of bankruptcy. This definition is necessary to make clear that a case
diction over the case for as long as it determines is necessary to the
under Chapter IX is to be conducted in the district court, before a
successful execution of the plan.
district judge, rather than before a referee in bankruptcy. See section
Finally, at any time during the case, the court may dismiss for
87, infra, which provides for special reference to a bankruptcy referee.
five different reasons: want of prosecution, failure to propose a plan
Paragraph (3) defines creditor as the holder of a claim. This in-
within the time fixed by the court, failure to have a plan accepted
cludes, where applicable, the United States, a State or a subdivision
within the time fixed by the court, failure to have the plan confirmed,
of a State. The language in section 82, paragraph 5, that included the
and where the court has retained jurisdiction after confirmation, de-
United States has been generalized and placed in the definition of
fault on the terms of the plan, or termination of the plan by reason
creditor, and States and their subdivisions have been included. No
of the happening of a condition specified in the plan. Voluntary dis-
change is intended from current law under which a government
missal on the petitioner's own application is always available in a
agency may purchase numerous claims for less than face value and
court of equity, after hearing on notice.
then vote those securities at full face value. West Coast Life Insur-
If the petitioner has attempted to obtain consents from its creditors
ance Co. V. Merced Irr. Dist., 114 F. 2d 654 (9th Cir. 1940), cert.
to a plan of adjustment outside of Chapter IX, any exchange of securi-
denied 311 U.S. 718 (1941). (Reconstruction Finance Corporation
ties incident to that attempt may be counted in the computation of
financed refunding of petitioner's debt by purchasing securities from
acceptances required for confirmation in a case under the chapter.
former holders and voting them in support of plan which proposed to
17
16
inal" is inserted to make clear that the jurisdiction of the court is ex-
pay both the R.F.C. and the security holders who did not sell to the
clusive only with respect to original jurisdiction; the apellate pro-
R.F.C. the same amount that the R.F.C. had paid for its holdings.)
cedures defined in section 24 of the Bankruptcy Act are not disturbed.
In the corporate context, a creditor who acquired a security at less than
Matters arising in a Chapter IX case are appealable to the courts of
face value is still a creditor to the full amount of the obligation. No
appeal and to the Supreme Court, the same as in any other chapter case.
reason is apparent why a different result should obtain in Chapter
The court in which the petition is filed is also given exclusive personal
IX. Language is found in current Chapter IX, section 82, which
júrisdiction over the petitioner and its property, wherever located, for
makes this explicit, but is deleted in this bill as unnecessary.
the purposes of this chapter. This restates prior case law, Poinsett
Paragraph (4) defines claim affected by the plan as a claim as to
Lumber & Mfg. Co. V. Drainage Dist. No. 7, 119 F.2d 270, 272 (8th
which the rights of its holder are proposed to be materially and ad-
Cir. 1941) ("Upon the approval of the debtor's petition as properly
versely adjusted or modified. This paragraph is derived from current
filed the resources of the debtor come within the exclusive jurisdiction
section 82, paragraph 5. The term "adversely" is added to conform the
of the bankruptcy court."). This does not mean that the court has ex-
language to that used in Chapters X and XI (See sections 107, 308).
clusive jurisdiction over the petitioner with respect to all cases, but
By analogy to "claim affected by the plan" and to sections 107 and
rather only for the purposes of this chapter. That might include such
308, "creditor affected by the plan" as used throughout the bill has the
matters as disputes over property subject to a lien, or disputes con-
same meaning-one whose claim is proposed to be materially and ad-
cerning claims against the petitioner that could be dealt with under
versely adjusted or modified by the plan.
Chapter IX. 5 Collier, Bankruptcy § 81.10, at 1572 (14th rev. ed. 1975)
Paragraph (5) defines debt as a claim allowable under section 88 (a).
("
[T]he resources of the debtor come within the exclusive juris-
This definition is primarily for convenience, equating debt and claim,
diction of the bankruptcy court. That court has exclusive and non-
as defined. However, the phrase "allowable under section 88 (a) does
delegable control over the administration of the debtor's estate within
potentially limit the definition. The broad definition of claim, and the
the terms of Chapter IX, and ordinarily, therefore, the court is the
broad allowability rules of section 88(a) make this limitation more
proper place to litigate and adjudicate claims against the debtor.").
theoretical than real. To the extent that it exists, it is a limitation on
The language of this subdivision is virtually identical to that of § 111
the claims which may be dealt with by the plan, see section 91.
(Chapter X) and § 311 (Chapter XI) of the present Act.
Paragraph (6) defines petitioner for convenience only. No substan-
Subsection (b) grants the court powers similar to those granted to
tive or limiting result is intended.
the reorganization court in sections (b), (c) (3) ; 116(1), (2) and
Paragraph (7) defines plan for convenience only. It makes clear that
313 (1) and 344-to permit the rejection of executory contracts, and
any reference to a plan is to a plan filed under this chapter.
the issuance of certificates of indebtedness after hearing on notice. See
Paragraphs (8) and (9) define special tax payer affected by the
Texas Importing Co. V. Banco Popular de Puerto Rico, 360 F.2d 582
plan. They are derived from section 83 (a), paragraph 2, of the current
(5th Cir. 1966). The powers designated here are considered necessary
law, and are included to provide continuity with that law. The purpose
to the continued functioning and subsequent rehabilitation of the peti-
of their inclusion at all in a case under this chapter is to protect their
tioner. Accordingly, the language of subparagraph (1) is broad in
rights as tax payers against a change without a hearing in the assessed
scope. See generally, Countryman, Executory Contracts in Bank-
valuation of their land. A special tax payer is one who pays a special
ruptcy Part II, 58 Minn. L. Rev. 479 (1974). Certificates of indebted-
tax, that is, a tax the proceeds of which are the sole source of payment
ness are common in debtor-relief cases, see. e.g., In Re Third Avenue
of a bond issue. This form of financing was common prior to the first
Transit Corp., 198 F.2d 703 (2d Cir. 1952) In Re Prima Co., 88 F.2d
municipal bankruptcy act, and the inclusion of a provision for special
785 (7th Cir. 1937) ; 8 Collier, Bankruptcy § 6.40 (4), at 970 (14th rev.
tax payers was to meet that need. The financing was done in connec-
ed. 1975) ("Section 344 is usually resorted to where the business is
tion with irrigation, drainage, or other sorts of districts, where the
being operated, but it essentially contemplate transactions of an un-
local improvement that was financed by the bond issue benefited the
usual character, although not actually limited to such."), as is the re-
land served by the district. That is why the revenue for their repay-
jection of executory contracts. The abundant case law surrounding
ment was derived from a tax based on the value of the land. Under
these two provisions is meant to be incorporated into Chapter IX. For
the definition, a special tax payer is affected by the plan only if the
example, the court may permit the rejection only after hearing on
plan proposes to change the assessed value of his land out of propor-
notice, Texas Importing, supra, and only for the reasons that have been
tion to any other changes in assessed value proposed by the plan gen-
established by case law under Chapters X and XI. In summary, these
erally for the owners of land liable for the special tax.
reasons are that the contract is onerous and burdensome, and its re-
jection will aid the petitioner in its reorganization and rehabilitation
SECTION 82
attempt. With respect to labor contracts, the courts have taken a
slightly different position on the grounds for rejection, requiring a
Section 82 delimits the powers and the jurisdiction of the court in a
showing of a greater burden on the petitioner. Shopmen's Local No.
Chapter IX case. Subsection (a), derived from § 81 of the current law,
455 V. Kevin Steel Products, Inc., 1 Bankr. Ct. Dec. 1432 (2d Cir.
gives the court in which the petition is filed exclusive original subject
7-24-75) ; Brotherhood of Railway Employees V. REA Express, Inc.,
matter jurisdiction for the adjustment of the petitioner's debts, that is,
exclusive original jurisdiction over Chapter IX cases. The term "orig-
H. Rept. 686-75-3
1080 LIBRARY is GERALD
18
19
1 Bankr. Ct. Dec. 1237 (5th Cir. 8-27-75) ; In Re Overseas Airways,
income-producing property that is not necessary for essential govern-
238 F. Supp. 359 (E.D. N.Y. 1965).
mental services, but the existence of that category does not warrant
Under paragraph (3), the court may also exercise such other powers
the potential for litigation that exists with the old language. In any
as are not inconsistent with the provisions of Chapter IX. This para-
case, no constitutional problem is anticipated, because the power of the
graph supplements section 2 of the Bankruptcy Act by giving the
court to interfere with the petitioner is further limited by the change.
court those powers not mentioned in section 2 yet necessary to the
The phrase "any income-producing property" appears broad. It is
disposition of cases under Chapter. IX
copies from current law without qualification, because there exists
Subsection (c) repeats and broadens the limitation in section 3(c),
some ambiguity in its meaning. Rather than attempting to define
paragraph 1, of current law on the power granted to the court under
it to eliminate the ambiguity, it was left as is SO that the courts might
subsection (b) and elsewhere in the chapter, by prohibiting any inter-
interpret it as they have done in the past consistent with the purposes
ference by the court, by any order or decree, in any of the political or
of Chapter IX and the powers of the court.
governmental powers of the petitioner; any of the property or revenues
of the petitioner, or any income producing property of the petitioner,
SECTION 83
or which is used or enjoyed by the petitioner. The Committee feels that
this limitation is required by Ashton V. Cameron Water Imp. Dist.
The purpose of section 83, copied from present section 83(i), is the
No. 1, 298 U.S. 513 (1936), and United States V. Bekins, 304 U.S. 27,
same as that of section 82 (c). It is to prevent the statute or the court
rehearing denied, 304 U.S. 589 (1938), which defined the limits of
from interfering with the power constitutionally reserved to the State
Congress' power under the bankruptcy clause, and the extent to which
by the Tenth Amendment. This section makes it clear that the chapter
Congress may grant power to the courts to assist in the management
may not be construed to limit or impair the power of the State to con-
of the affairs of a distressed municipality.
trol, by legislation or otherwise, any municipality, political subdivi-
The changes in this subsection are two; first, the phrase "unless the
sion or public agency or instrumentality in the exercise of its govern-
petitioner consents" is added in order to codify the result of the case
mental functions. Any State law that governs municipalities or
of Leco Properties V. R. E. Crummer, 128 F. 2d 110 (5th Cir. 1942),
regulates the way in which they may conduct their affairs controls
in which a municipality that had failed to have a composition con-
in all cases. Likewise, any State agency that has been given control
firmed was ordered, and consented to, leave the amount deposited with
over any of the affairs of a municipality will continue to control the
the court for distribution under the plan with the court SO that it
municipality in the same way, in spite of a Chapter IX petition.
might distribute that portion to creditors in an orderly fashion; and
The proviso in current section 83(i), retained here, prohibiting state
the case of Ware V. R. E. Crummer & Co., 128 F. 2d 114 (5th Cir.)
composition procedures was enacted in response to, and overruled the
cert. denied, 317 U.S. 644 (1942), in which the Court of Appeals
holding of the Supreme Court in, Faitoute Iron & Steel Co. V. City of
reversed a similar order where the petitioner did not consent. The
Asbury Park, 316 U.S. 502 (1942). In that case, the court upheld a
New Jersey statute that permitted a binding composition of a munici-
phrase is not intended, however, to overrule the result of Spellings V.
Dewey, 122 F. 2d 652 (8th Cir. 1941), in which the Court of Appeals
pality's debts upon the acceptance of a plan by 85% of the municipal-
reversed the District court's injunction against the election of Drainage
ity's creditors. The composition dealt only with unsecured obligations,
and the state statute prohibited reduction in the principal amount of
District Commissioners upon the allegation of the incumbent Com-
missioners that the challengers would not execute the proposed plan,
the outstanding obligations. The Court refused to go beyond the facts
of the case, holding only that the Contracts Clause of the Constitution
even though the incumbent Commissioners were, in effect, the District
did not prohibit that particular composition.
itself for the purpose of determining whether the petitioner con-
The proviso is retained for the same reason it was enacted by
sented to an order of the court.
The second change broadens the limitation by eliminating the phrase
Congress:
"necessary for essential governmental services" from the second para-
State adjustment acts have been held to be valid, but a
graph of the subsection. The phrase was deleted for three reasons.
bankruptcy law under which the bondholders of a munici-
First, the words "necessary" and "essential" were conducive to litiga-
pality are required to surrender or cancel their obligations
tion. Second, and more importantly, the Supreme Court in New York
should be uniform throughout the [United] States, as the
V. United States, 326 U.S. 572 (1946), abolished the distinction be-
bonds of almost every municipality are widely held. Only
tween governmental and proprietary functions. Thus, it is now appro-
under a Federal law should a creditor be forced to accept
priate to prohibit interference by the court in any of the municipalities'
such an adjustment without his consent. H.R. REP. No. 2246,
functions, for they are all equally governmental functions.
79th Cong., 2d Sess. 4 (1946).
Third, the limitation, on interference with any income-producing
property, seems to deprive the qualification "essential for necessary
SECTION 84
governmental services" of any effect. Under one, the court is denied the
power to interfere with property necessary for governmental services;
Section 84 is derived in part from current section 81. It sets the eligi-
under the other, the court may not interfere with any income-producing
bility requirements for relief under Chapter IX. The entity that files
property. There is conceivably a third category of property, non-
must be a political subdivision or public agency or public instrumen-
20
tality of a State. This is not meant to be limiting language, but rather
21
is meant to be a description of general categories that cover all of the
various entities now listed in section 81 of current law. The bill also
complaint. Of course, the court would be bound by all Due Process
omits any limiting reference to the manner by which the indebtness of
requirements, and may, if it decided to pursue such a course, enclose
the entity is payable. The intention of these two changes is to broaden
in the notice to each creditor a notice of the date by which a complaint
the applicability of Chapter IX as much as possible. The entity must
by that creditor against the filing of the petition must be filed.
not be prohibited from filing by state law. The reference to a prohibi-
The grounds for a complaint may generally include only a lack of
tion by state law recognizes a limitation frequently expressed in the
eligibility under section 84 of the petitioner to file, though there may
cases and literature. Faitoute Iron & Steel Co. V. City of Asbury Park,
be other grounds that a court of equity might hear. The section 84 re-
316 U.S. 502 (1942) ; 5 Collier 81.04 (1964) ; Biern, A Survey of Muni-
cipal Bankruptcy Law and procedure, 38 Brooklyn L. Rey. 478. 485-
quirements include: insolvency or inability to meet debts as they
mature; lack of a state prohibition against seeking relief under the
87 (1971). It must also be insolvent, or unable to meet its debts as they
Act; the intention of the petitioner to effect a plan of adjustment. Any
mature, and the entity must desire to effect a plan to adjust its debts.
The decision on whether a petitioner meets these requirements will be
lack of good faith on the petitioner's part in filing the petition would
undoubtedly be tested under this last requirement. To the extent prac-
made by the court after the filing of a complaint and a hearing after
ticable, the court must hear and determine all complaints in a single
notice, under section 85 (a). These last two requirements are simple
proceeding. For example, if several complaints allege that the peti-
and, except for insolvency or inability to meet debts, are easily prov-
tioner is not insolvent or unable to meet its debts, it might be appro-
able in most cases. They are derived from current section (a), para-
priate for the court to hear all such complaints in a single proceeding.
graph 1.
More specificity is not stated in the bill and the implementation of
SECTION 85
this mandate, which is intended to help the court expedite the hearings
Section 85 governs the filing of the petition and all events that are
on various complaints, is left to the sound discretion of the court.
triggered by the filing. Subsection (a) describes who may file a peti-
Subsection (b), derived from present section 83 (a), paragraphs 1
tion. It is derived from current section 83 (a), paragraph 1. The peti-
and 2, requires that the petitioner file with its petition a list of all of
tioner itself must file, unless control of the petitioner has been assumed
its creditors. If it is not practicable for the petitioner to file the list with
by some state agency. In the case of an entity with no officials of its
its petition, for example, if the petitioner's creditors are primarily
own, the petition may be filed by its governing authority or the
holders of bearer bonds whose whereabouts or even whose identities
board or body having authority to levy taxes or assessments to meet
are unknown, then the petitioner may file the list at such later time as
the obligations of the district. The petition must allege the facts that
the court, upon application of the petitioner, fixes. If the petitioner
make the entity eligible under section 84 for relief under this chapter.
does not apply to the court to fix a time, then the court may fix a time
Any party in interest may file a complaint objecting to the filing of the
on its own motion. Of course, it is always within the power of the court
petition at any time up to 15 days after the completion of the mailing
to deny the petitioner's application on the grounds that the petitioner's
of the notice required by subsection (d). The deadline obviates the
reason for not filing the list with the petition is inadequate. As the
problem of dilatory creditors who might challenge a petition long
author of the Proposed Bankruptcy Rules and Official Forms under
after negotiations for a plan have been concluded. The possibility for
Chapter IX, the Advisory Committee on Bankruptcy Rules of the
relay exists here, but the court is given adequate flexibility to expe-
Committee on Rules of Practice and Procedure of the Judicial Confer-
dite matters. For example, if the petitioner cannot identify all of its
ence of the United States, said in the note accompanying proposed Rule
creditors reasonably soon, the court may hear and determine a number
9-7, dealing with the filing of the list of creditors:
of complaints that are filed soon after the petition is filed before wait-
[D]ue regard must be given to the constitutional limits
ing for the completion of the mailing of notice. Creditors would still
placed on the court. Bearer bonds would be included on the
be allowed to come in and object to the petition up to 15 days after the
list required to be filed
although the names of the holders
mailing of notice is completed, even though the court may have heard
are unknown. By SO listing, the claim would be deemed filed
and determined earlier complaints on the same subject. Due Process
and allowed [under section 88(a)].
The holder thereof
would appear to require that every creditor that wishes be allowed
would thus be entitled to participate in any distribution with-
his day in court. Nevertheless, the early determination by the court
out filing a claim. One could, however, file a claim if he
that the petition meets certain requirements, even if only a preliminary
desired.
determination on early complaints, and not res judicata as to com-
plaints by later identified creditors, could settle the propriety of the
The court, of course, remains under the Fifth Amendment Due Process
petition adequately to enable the court to proceed to administer the
requirement that governs whether the plan is binding, as is recognized
case as needed. In order to expedite matters further, the court might
in sections 95 (a) and 95 (b) (2) (B).
bar a complaint by a creditor that was filed more than fifteen days
The petition and any accompanying papers, such as the list or the
after the mailing of notice to that creditor, even though the mailing
plan, are to be filed with a court in a district in which the petitioner is
to all creditors had not been completed at the time of the filing of the
located. This is drawn from section 83(a), paragraph 1. Generally, a
petitioner will be located in only one district. In some cases, however,
where the petitioner's jurisdiction covers a very large geographical
area, it may be located in two or more districts. The venue provision
22
23
in this subsection is designed to afford such a petitioner the flexibility
or with the petitioner's consent. It includes a stay of all set-offs and
to file in the most appropriate district, usually the district in which
counterclaims relating to any debt, contract or obligation of the peti-
the petitioner's executive's office is located. However, this broad venue
tioner. Baker V. Gold Seal Liquors, Inc., 417 U.S. 467 (1974), supplies
provision is not intended to supersede the transfer provisions otherwise
the authority and the rationale for such a provision. The Court's held
found in the Judicial Code or the inherent power of a court to require
that the right to set-off subverted the twin policy goals of railroad
filing in a different district under the doctrine of forum non conveniens.
reorganization, rehabilitation of a going enterprise, and fair and
The filing fee, set at $100, is the same as under present section 83 (a),
equitable distribution to creditors:
paragraph 1.
The problem of the bankruptcy Reorganization Court is
The notice provisions of the bill are carried forward substantially
somewhat different. Liquidation is not the objective. Rather,
intact from current law, section 83 (b). Added are the requirements
the aim is by financial restructuring to put back into operation
of formal notice to the State in which the petitioner is located and to
a going concern. That entails two basic considerations: First
the Securities and Exchange Commission. The notice must be pub-
is the collection of amounts owed the bankrupt to keep its
lished as soon as practicable after the filing of the list of creditors, at
cash inflow sufficient for operating purposes, at least at the
least once a week for three successive weeks in at least one newspaper
survival levels. The second is to design a plan which creditors
of general circulation published within the jurisdiction of the court,
and other claimants will approve, which will pass scrutiny
and in such other papers having a general circulation among bond
of the Interstate Commerce Commission, which will meet the
dealers and bond holders as may be designated by the court. The court
fair-and-equitable standards required by the Act for court
is given authority to require additional publication where the circum-
approval, and which will preserve an ongoing railroad in the
stances warrant. The intent is to meet the constitutional notice require-
public interest. 417 U.S., at 470-71 (footnotes omitted).
ment set out by the Supreme Court in Mullane V. Central Hanover
Bank, 339 U.S. 306 (1950), and Eisen V. Carlisle-Jacquelin, 94 S. Ct.
The Court's concern in Baker with the "fair and equitable" standard
2140 (1974). This requirement assumes even greater importance in
is applicable to Chapter IX as well, section (b) (1), and the public
light of the automatic stay provision of subsection (e). To satisfy the
interest in preserving a viable operating entity is paramount.
constitutional standard, the bill requires that a copy of the notice be
The stay continues in force until the court terminates, modifies,
mailed to each of the petitioner's creditors included on the list of
annuls or conditions it. or the property subject to the lien which is
creditors required by subsection (b). If a creditor is included in the
sóught to be enforced, is. with the approval of the court, transferred
or abandoned. Anyone subject to the stay may seek relief by filing a
list, but his address is not given in the list, and his address cannot with
complaint with the court, and the court may, for cause shown, after
reasonable diligence be ascertained, then the court may, if it SO deter-
hearing on notice, terminate, annul, modify or condition the stay. The
mines, order the mailing of notice to that creditor addressed as the
"cause shown" requirement is derived from section 116 of Chapter X
court may prescribe. The notice must include not only the fact that a
and has an abundant case law behind it. Because of the broad nature
case has been filed, but also a notice that the creditor will receive no
of the automatic stay, the petitioner should inform the court as soon as
further notice unless he files a request with the court, setting forth the
possible of those actions with respect to which the petitioner will con-
nature of his claim, and his name and address. If he files such a request,
sent to relief from the stay, in order to expedite and perhaps obviate
the court must notify him of all other matters in which he has a direct
the need for complaints for relief.
and substantial interest. The petitioner bears all cost of notice, unless
The fourth paragraph also permits the stay of other actions or pro-
the court for good cause determines that the cost of notice in a particu-
ceedings, the commencement or continuation of which would be detri-
lar instance should be borne by another party.
mental to the purposes of Chapter IX, such as attempting to enforce
Subsection (e) provides that the filing of a petition under this chap-
a claim against the petitioner by a judicial action or by set-off or
ter operates as an automatic stay of all actions, judicial or otherwise,
counter-claim against a wholly-owned or public corporation of the
against the petitioner, its property, its officers, or its inhabitants, which
petitioner that is, at least for financial purposes, independent, and
seek to enforce a claim against the petitioner, or a lein on the peti-
not liable for the petitioner's obligations. The petitioner, when it seeks
tioner's property. The stay provision is derived from section 83(c),
this additional stay. is not required to give security as a condtion to
paragraph 1, but, in accordance with the changes made by the Rules
such a stay, as would otherwse be required by Federal Rule of Civil
of Bankruptcy Procedure in Chapters X, XI and XII, Rules 10-601,
Procedure 65 (c). The breadth of this provision is not intended to
11-44, 12-43, and by Proposed Chapter IX Rule 9-4, the petitioner
overrule other, specific Federal legislation that prohibits Federal
need not take affirmative action to obtain the benefit of the stay. The
courts from issuing injunctions, such as the Norris-LaGuardia Act.
stay is made automatic on the filing of the petition. The automatic stay
Subsection (f) makes unenforceable certain contractual provisions,
prevents the creditors' race that often ensures when a debtor fails to
commonly called "ipso facto" or "bankruptcy" clauses, or applicable
meet its obligation, and it requires that all actions against the peti-
nonbankruptcy laws that invalidate or allow termination of contracts
tioner be handled in the bankruptcy court, where they can be con-
or leases upon the insolvency of one of the parties to the contract.
trolled and harmonized. The automatic stay provision of the subsec-
The purpose of these clauses is to protect the solvent contracting party
tion is very broad, including a stay of any action that allows a creditor
from a decline in the quality of the other party's credit when the
to obtain any portion of the claim due him, other than under the plan,
contract establishes a creditor/debtor relationship. The purpose of
25
24
SECTION 87
this section, derived in part from section 70(b) of the Bankruptcy
Section 87 of the bill deals with administrative matters in the case.
Act, is to allow the petitioner to continue to operate in spite of the
filing of the petition, the consequent decline in the petitioner's credit,
Subsection (a) allows special reference of various matters to a referee
and the possible cessation of delivery of services or supplies by any
in bankruptcy. The reference provision is derived from section 83 (b)
of the petitioner's suppliers. This subsection requires that past de-
of the present law, with two changes. First, references may be made
faults in performance be cured, and adequate assurance of future
only to referees in bankruptcy, rather than to referees or special
performance be provided before the petitioner may insist on further
masters. The bankruptcy bench has grown both in numbers and ex-
performance of the contract. "Adequate assurance" is adopted from
pertise since the current law was enacted in 1937, such that it is now
section 2-609 (1) of the Uniform Commercial Code. What constitutes
preferable to refer any special matters to referees who are familiar
"adequate assurance" must be determined by the facts of each case,
with and experienced in the conduct and the problems of bankruptcy
but may, for example, in the case of a lease, be simply the security
proceedings. The second change adopts a sentence and the substance of
form of Federal Rule of Civil Procedure (b) that reference shall
or rental deposit under the lease. In addition, any credit extended
under the contract after the filing of the petition would be accorded
be the exception and not the rule. Though a general test is set out
in the subsection for when a judge may refer a special matter, the
a first priority under section (1). These two requirements, adequate
addition of this sentence makes it clear that the judge should make
assurance and first priority, substitute for the ipso facto clause in
every effort to hear each proceeding himself, and not rely on a referee
assuring the solvent contracting party of the other party's ability to
in his district to handle most of the factual matters that arise in a
perform, and prevent the continued performance under the contract
by the petitioner from becoming burdensome to the solvent party.
Chapter IX case. The section retains the current limitation that ref-
erence shall be only for special findings of fact, not of law, and that a
general reference of the case, as is done in Chapter XI or in straight
SECTION 86
liquidation cases, shall not be made.
This section governs the appearance of creditors before the court,
Subsection (b) allows the court to grant reasonable compensation
and in negotiations with the petitioner. Subsection (a) permits any
for the actual and necessary expenses incurred in connection with the
creditor to appear in person or by a duly authorized agent, attorney
case, including services that relate to developing, obtaining confirma-
or committee. This is derived from section 83 (a), paragraph 5. In
tion of, and executing the plan. This is normally done in other chapter
Chapter cases, it usually happens that creditors of the same class elect
cases, and the court will undoubtedly rely on the broad experience and
committees to represent them for most purposes. This codifies that
case law in connection with cases under those chapters. The section, de-
result. The subsection requires, however, financial disclosure by those
rived from current section 83(b), paragraph 4, with only style changes
committees and those who represent the committees, such as the com-
(and the elimination of allowance of compensation for special masters
mittee's attorney or agent. This is routinely done in cases filed under
in conformity with the change made in subsection (a)), is directed at
other chapters, and is incorporated here. It is not intended that any
the court's allowing compensation by the petitioner as an administra-
attorney representing anyone in the case disclose his compensation to
tive expense for the services covered. It is not intended that the court
the court, and that the court have an opportunity to rule on it. In a
should pass on all fees paid by anyone incident to the case. Where
large Chapter IX case, the paperwork attendant upon such a result
private parties and their attorneys or agents arrive at a private com-
would effectively grind the proceedings to a halt. The general lan-
pensation agreement, the court should not upset it, for it does not bear
guage of this subsection is intended merely as a guide to the courts
in any way on the plan of adjustment or on the petitioner's expenses.
and an indication that the courts should apply the same standards
In accordance with the limitation imposed by section 82(c), the court
currently used in other chapters for disclosure of representation of
may only allow the compensation-it may not be assessed against the
and compensation by the petitioner and official creditor representa-
petitioner unless the petitioner has made provision for the payment of
tives.
those expenses in the plan.
Subsection (b) relates to multiple compensation by both the peti-
Subdivision (c) is new, but is derived from Rule of Bankruptcy
tioner and one or more creditors in the promotion of the plan. It is
Procedure 117 (b), which recognizes the appropriateness of joint ad-
meant to codify the result of the Supreme Court case of American
ministration in certain kinds of cases, for example, Chapter IX
Mutual Life Ins. Co. V. City of Avon Park, 311 U.S. 138 (1940). The
filings of both a municipality and one of its wholly-owned public, but
language is derived from section 83(e), paragraphs 1 and 2, and,
independent, corporations. Joint administration has as its objective
with style changes, is modernized and streamlined. The substantive
the joint handling of purely administrative matters in order to expe-
intent is the same as under current law. It is not intended to upset
dite the cases. Joint administration should be distinguished from
other arrangements, whereby a person receives compensation from
consolidation, which is neither prohibited nor authorized by this sub-
both the petitioner and one of its creditors, not in return for promot-
section. The appropriateness of consolidation, which results in a pool-
ing the plan, but rather as part of an ordinary employment relation-
ing of the assets, revenues, liabilities and expenses of the two entities,
ship outside of the Chapter IX case.
H. Rept. 686-75-4
26
27
depends upon substantive considerations which affect the substantive
Subsection (b), derived from present section 83 (b), paragraph 2,
rights of the creditors of the different entities. See Seligson & Mandell,
requires the court to designate classes of creditors whose claims are of
Multi-Debtor Petitions-Consolidation of Debtors and Due Process
substantially similar character and the members of which enjoy sub-
of Law, 73 Com. L. J. 341 (1968).
stantially similar rights. The rights of creditors and the nature of the
claims are determined by State law. It is possible that a single creditor
SECTION 88
with several claims may be placed into multiple classes. The classifi-
cation standards in current law are far too restrictive to accomplish
Subsection (a) specifies how claims against the petitioner are al-
a fair classification of creditors. The new language is intended to al-
lowed, that is, how they are established for purposes of computation
low the court greater flexibility, within the confines of the Due Proc-
of acceptances, distribution under the plan and all other purposes
ess Clause, and greater guidance than the terse "according to the na-
under the chapter. Generally, the list of creditors filed by the petitioner
ture of their claims" standard found in Chapters X and XI, sections
will determine most of the claims against the petitioner.
197 and 351. The substantive result, however, will probably not differ
The Note accompanying Proposed Chapter IX Rule 9-22 describes
from that currently achieved in those chapters. "Differences in treat-
the procedure and its advantages:
ment [will] be just and reasonably necessary to effectuate the [plan]."
The inconvenience and expense to numerous and wide-
Bartle V. Markson Bros. Inc., 314 F.2d 303, 305 (2d Cir. 1963). "Such
spread creditors will be obviated as will the burdens of
classification
must be necessary and proper and made on a rea-
collecting and registering such claims on the part of the court
sonable basis.
Ordinarily, a creditor is not entitled to better
or petitioner. Bearer bonds would be included on the lists
treatment merely because he holds a small claim rather than a large
filed
and the holders thereof would not have to file claims
one." In re Hudson-Ross, Inc., 175 F. Supp. 111, 112 (N.D. III. 1959).
to participate since under this rule their claims would be
Also added to the subsection is a sentence which permits the court to
deemed filed and allowed.
classify creditors holding unsecured claims of less than $100 in the
[O]nly creditors whose claims are disputed, contingent,
same class for administrative convenience. This is currently done in
or unliquidated, or creditors as to whom it is determined ad-
Chapter XI cases; this sentence codifies that result. It has the effect
visable, need file proofs of claim. In any event, any creditor
of reducing the size of certain classes of creditors measurably, and
may file a claim. The court may but need not fix a bar date
thus expediting proceedings. These creditors are usually paid in full,
for the filing of proofs with respect to any or all creditors. If
SO that they are not deemed "affected by the plan," 9 Collier, Bank-
a claim is required to be filed, failure to do SO within the time
ruptcy. 9.01, at 230 (14th rev. ed. 1975). Because of the de minimis
fixed precludes that creditor from voting on a plan or partici-
nature of these claims, their placement in a separate class should not
pating in distribution
upset the classification standards set out above.
If the court does not set a date, then proofs of those other claims
Subsection (c) makes clear that the rejection of an executory con-
must be filed before the entry of an order confirming the plan. The
tract under section 82 (b) (1) or under section 91 gives rise to a claim
subsection also specifies that the court must mail notice to each of the
for damages against the petitioner, and that the claim may be asserted
in the case SO that the injured party can recover under the plan. It is
creditors whose claim is listed on the list of creditors as disputed,
derived from section 202 of Chapter X. The rejection constitutes a
contingent or unliquidated, informing him of the time fixed by the
breach as of the date of the commencement of the case. This prevents
court for the filing of proofs of claims. Of course, if the court does not
set a date, then the statutory standard applies, and the creditors are
any claim arising from such a rejection from rising to the status of
an administrative claim entitled to priority under section 89, and re-
on constructive notice that proofs of claims must be filed before the
entry of an order confirming the plan. These creditors presumably
quires that it be dealt with in the plan, if at all. The claim of a land-
will receive notice of the date set for the hearing on conformation,
lord for rejection of an unexpired lease is limited to the rent reserved,
and that should be adequate to alert them to the time within which they
without acceleration, or the damages or indemnity under a covenant
must file their proofs of claim. If for any reason, such as the sheer
in the lease for the year following the date of the surrender of the
volume of notices that must be mailed, the court is unable to com-
premises or the reentry of the landlord, whichever occurs first, plus
plete the mailing within the statutory thirty days, no penalty is pro-
any unpaid accrued rent up to the date of the surrender or reentry.
vided. As long as creditors are given adequate notice of the time within
This provision is a limitation to prevent a landlord with a long-term
which to file proofs of claims, the noncompliance with the thirty-day
lease from consuming a large portion of the estate by a claim for
mandate should present no Due Process problems. The purpose of
damages in a State in which there is no duty to mitigate damages re-
the thirty-day limit is to expedite matters as much as possible.
sulting from the breach of a lease. As the court said in Oldden V. Tonto
If there is no objection to a proof of claim, the claim is deemed
Realty Corp. 143 F.2d 916, 920 (2d Cir. 1944), landlords are "not in
allowed. If there is an objection, the court must hear and determine
the same position as other general creditors" and should not "be treated
the objection. After the hearing, the court allows or disallows the
on a par with them." See Newman, Rent Claims in Bankruptcy and
claim. The reason for the use of the term "deemed allowed" is to reduce
Corporate Reorganization. 43 Colum. L. Rev. 317 (1943). The one
paperwork for the court. The court need not enter an order allowing
year limitation is derived from section 63(a) (9) of the Bankruptcy
each and every claim if there is no objection or dispute.
Act. There is no corresponding limit on the amount of damages for
the rejection of any other executory contract.
28
29
SECTION 89
Section 89 is new. There is no provision in current law for priorities.
which maintain the business and which are inherently essential to the
However, there are indications such as in current section (b), para-
protection and preservation of the security." 6A Collier Bankruptcy.
graph 4, and in section 83 (e), paragraphs 1, 2, and 3(4), that peti-
9.13, at 250-51 (14th rev. ed. 1975). The same public policy con-
tioners under Chapter IX regularly pay administrative expenses, or
siderations are applicable to a Chapter IX case.
those that are incident to the confirmation and consummation of a
The words "debts or consideration owed" are used instead of "wages"
plan. In keeping with the policy that the court not interfere with the
as in section 64 (a) (2) of the Bankruptcy Act in order to make clear
petitioner in any of its expenditures, it was most likely contemplated
that the result of United States v. Embassy Restaurant, Inc., 359 U.S.
under current law that the petitioner would pay its operating expenses
29 (1959) is not to apply to wages and fringe benefits which fall within
and those incident to the plan either currently or under the plan, and
the second priority in Chapter IX. That case held that "wages" did
thus there was no need for a specific priority section. The addition
not include fringe benefits, such as vacation or sick leave, and pension
or retirement fund contributions owed by an employer on behalf of his
of such a priority section in this bill is more to protect the second and
third priorities rather than the first, administrative expenses, for as
employees. The third priority is not really a priority at all, but is
rather a subordination. Under certain Federal laws, notably Revised
noted, it is most likely that the first would be paid in any event. With-
Statutes section 3466, the United States has a first priority whenever
out some assurance of payment, the petitioner's suppliers, employees
one of its debtors becomes insolvent. The debts owed to the United
and those connected with formulating and executing the plan could
States would prime all other debts, even administrative expenses, with-
not be expected to perform at all. That is why operating and admin-
istrative expenses (somewhat redundantly) are given a first priority
out this specification that they are to be paid in full before any pay-
ments under the plan, but not ahead of administrative expenses and
under this section.
With the petitioner relieved of the burden of debt service by the
second priority debts.
SECTION 90
filing of the petition, in most cases the petitioner will be able to pay all
operating expenses currently, or under credit terms which obtained
Subsection (a) is derived from current sections 83 (a), paragraph 1,
prior to the filing of the petition. If the petitioner cannot meet such
and 83 (e), paragraph 4. The subsection requires that the petitioner file
payments currently, the bill provides in section (b) (2) for the
with its petition a plan for the adjustments of its debts. The contents
issuance of certificates of indebtedness to finance any short-fall in
of the plan are specified by section 91. If the petitioner does not file the
revenues. Certificates of indebtedness is the method for such financing,
plan with its petition, then it must file it within such time as the court,
not delay of payment to post-petition suppliers. Such delay could
on its own motion or upon application of the petitioner, prescribes.
seriously jeopardize the financial position of the suppliers. Their in-
The subsection also permits the petitioner to file a modification of
solvency might similarly jeopardize supplies and services to the peti-
its plan at any time prior to the confirmation of the plan. This is
tioner. For example, the petitioner's utility suppliers must maintain
found in current section 83 (e), paragraph 4. The requirement that the
service if the petitioner is to continue to operate and to provide gov-
petitioner obtain court approval is deleted as unnecessary, because the
ernmental services to its inhabitants. Late payment to the utility
petitioner no longer need obtain consents to the plan before filing, nor
suppliers would be manifestly unfair to a utility that had no effective
the approval of the court that the plan and the petition meet the
choice but to continue service, because discontinuing would paralyze
requirements of present section 83 (a).
the municipality. As under section 85(f), the petitioner should give
Subsection (b) requires that the court, as soon as practicable after
adequate assurances of future performance under the terms of the
the filing of the plan, fix a time within which creditors may accept
pre-petition contract for any suppliers that continue to serve the
or reject the plan. This date becomes important in computing the
petitioner.
requisite number of acceptances of the plan. A notice of this time is
The second priority is to reassure suppliers and employees that any
included with the copies or summary of the plan that the court trans-
arrearages due them will be cured in full. Without such assurance,
mits. The court should consider such factors as the time it will take
these creditors may insist on cash payments for goods and services
to transmit the plan to all who are entitled to receive a copy, and the
prior to the filing of a petition when it begins to appear that the peti-
time within which it is reasonable to expect that a creditor can
tioner is in financial trouble. Such creditor action could precipitate a
examine the plan and make an informed decision. After the court
filing, and even greater financial difficulties. This priority makes clear
fixes the time, it must transmit the plan or a summary of the plan
that they may continue to supply the petitioner with no fear of loss for
to each of the petitioner's creditors, to each of the special tax payers
the four months prior to the filing of a petition. This idea is based
affected by the plan, and to each such other party in interest as the
upon the "six-months rule" which originated in Federal railroad
court may designate. With the copy or summary, the court must in-
receiverships. Fosdick V. Schall, 99 U.S. 235 (1878). "The rule is
clude any analysis of the plan that has been prepared and filed with
grounded on both considerations of public policy, in that there is a
the court, and notice of the time fixed for acceptance or rejection. and
public interest in maintaining uninterrupted the business of a corpora-
of the right of the recipient of a summary to receive a copy of the
tion which is public or semi-public in character, and also on considera-
plan itself, upon request. The procedure for transmission of a modifica-
tions of equity and good conscience, in that secured creditors must be
tion of the plan filed by the petitioner is the same as for transmission
deemed to have agreed to a prior payment of those current expenses
of the original plan itself.
FORD
GERALD
LIBRARY
31
30
ing or rejecting the plan, are controlled by the petitioner. See Ameri-
SECTION 91
can Mutual Life Ins. Co. V. City of Avon Park, 311 U.S. 138 (1940).
This section is derived from current section 83(a), paragraph 3. It
Also excluded in the computation of the two-thirds majority are claims
gives the same broad latitude to a petitioner to formulate a plan to
of creditors who are provided for under subsection (d).
adjust its pre-petition debts as is presently given in Chapter IX
Subsection (d) specifies those creditors whose acceptances are not
petitioner or a Chapter X or XI debtor. There is one substantive
required for confirmation of the plan. The section is taken verbatim
change from current law, along with minor style changes. That is
(except for the introductory clause) from the current section 83 (d)
the addition of a provision that permits the petitioner to reject execu-
proviso. It permits the court to dispense with acceptances from a
tory contracts as part of the plan. Such rejection as part of the plan is
class of creditors (or a single creditor if he is in a class by himself)
permissible in Chapter X, section 216(4), and Chapter XI, section
whose claims are not affected by the plan, if the plan makes provision
357 (2), and is added here in conjunction with section 82(b) (1) of
for the payment of their claims in cash in full, or if provision is
the bill.
made in the plan for the protection of the interests, claims or lien
SECTION 92
of such creditor or class of creditors. This subsection permits the court
to confirm a plan even in the face of a recalcitrant class of creditors,
Subsection (a), derived from current section 83 (d) defines who is
if the petitioner makes provision in the plan for them as specified,
entitled to accept or reject a plan. Every creditor whose claim has been
or if it pays them in cash in full. In essence, the three paragraphs
allowed or deemed allowed under section 88 and who is materially
of the subsection specifying the modes in which the petitioner may
and adversely affected by the plan may file a written acceptance or
dispense with the acceptances of a particular class amount to a
rejection of the plan with the court. That includes all creditors whose
codification of the constitutional Due Process standard for the pro-
claims are included on the list filed under section 85(b) and whose
tection of the property of a class of creditors that does not consent
claims are not disputed, contingent or unliquidated as to amount; all
to the plan. It is important to recognize that the section does not
creditors who file proofs of claims under section 88(a) and whose
contemplate that a minority of non-assenting creditors within a class
claims are not then disputed, contingent or unliquidated as to amount;
may be bought off. They are bound by the decision of two-thirds
all creditors whose claims are allowed by the court after objection by
of their class. The cram-down instead contemplates that a class of
a party in interest after the filing of a proof of claim; and all security
creditors that does not consent to the plan by the requisite two-thirds
holders of record as of the date of the transmittal of the plan or
(or, if a class consists of only one creditor, that creditor who does
modification under section 90(b); as long as they are materially and
not consent) may be settled with as a whole.
adversely affected by the plan. The subsection also allows the court
Subsection (e) sets out the requirements for the acceptance of a
to allow temporarily any claim over which there is a dispute, in such
proposed modification of the plan. A proposed modification must be
amount as the court deems proper, in order that the ceditor holding
accepted in the same manner as the plan itself. However, the subsec-
that claim be allowed to accept or reject the plan. The provision is
tion posits several presumptions about the acceptance of modifications.
derived from Rules of Bankruptcy Procedure 10-305 (a) and 11-37
These are designed to save paper work and expedite acceptance. They
It gives the court some flexibility and expedites acceptance of the
are that any creditor who has accepted the plan and is not affected
plan, because it means that the court does not need to determine finally
materially and adversely by the modification (as determined by the
all objections to claims before the plan may be transmitted for ac-
court) is deemed to have accepted the modification; and that any
ceptance or rejection.
creditor who is materially and adversely affected by the proposed
Subsection (b) sets out the general rule for the acceptance required.
modification and who has accepted the plan is deemed to have accepted
In order for a plan to be confirmed, it must have been accepted in
the modification unless he files a written rejection of the modfiication
writing by creditors holding two-thirds in amount of the claims of
within the time fixed by the court. The subjection requires that the
each class. That is, the acceptances and rejections must be computed
court give notice to creditors who are materially and adversely affected
separately for each class of creditors designated by the court under
by the proposed modification of the modification and of the time
section 88(b), and creditors holding two-thirds of the claims of
within which the creditor must file a rejection. The modification must
each class must accept the plan before it may be confirmed.
be accepted as the plan by the same majority of each class affected.
Subsection (c) defines the computation method. The court must
compute the two-thirds required by subsection (b) on the basis of
SECTION 93
the total amount of claims with respect to which a written acceptance
or rejection has been filed. This is a change in two ways from current
Section 93, derived from section 83(b), paragraph 2, specifies who
law, which requires that there be acceptance by creditors holding
may object to the plan. Any creditor affected by the plan, any special
two-thirds of the aggregate amount of all claims of all classes, whether
tax payer affected by the plan, and the Securities and Exchange Com-
or not holders of some claims have filed acceptances or rejections.
mission may object to the plan. The S.E.C. is denied the right to
Subsection (c) also directs the court not to include in the computa-
appeal from any order of the court relating to confirmation of the
tion of the requisite majority any acceptances or rejections filed by
plan, as in § 208 of Chapter X. Objection to the plan is by a com-
the petitioner or a ny person or entity which, for purposes of accept-
32
33
plaint which alleges that the plan does not meet one or more of the
delinquencies, and any general economic conditions of the
statutory requirements set out in section 94 (b).
District which may reasonably be expected to affect the per-
centage of future delinquencies
SECTION 94
Fair and equitable has additional consent in Chapter IX. The peti-
Subsection (a) is derived from current section 83 (a), paragraphs
tioner must exercise its taxing power to the fullest extent possible for
1, 2, and 3. It requires the court to hold a hearing on the confirmation
the benefit of its creditors, Fano V. Newport Heights Irr. Dist., 144
of the plan (with any modifications) within a reasonable time after
F. 2d 563 (9th Cir. 1940). The court must find that the amount pro-
the expiration of the time set by the court under section 92(a) and
posed to be paid under the plan was all that the creditors could reason-
92 (d) for the acceptance or rejection of the plan and any modifica-
ably expect under the circumstances. In addition,
tions. The court must give notice of the hearing to all parties entitled
the fact that the vast majority of security holders may have
to object under section 93. The court will probably find it easiest to
approved a plan is not the test of whether that plan satisfies
fix the time for the hearing before it transmits the plan, in order
the statutory standard (of fairness). The former is not a sub-
that it may include the notice of the hearing with the notice trans-
stitute for the latter; they are independent.
mitting the plan or any modification.
Subsection (b) lists the requirements for confirmation of the plan.
American Mutual Life Ins. Co. V. City of Avon Park, 311 U.S. 138,
It is copied from present section 83(e), paragraph 3, with minor
148 (1940). Fair and equitable also requires that the plan embody a
style, but no substantive, changes. The first requirement is that the
fair and equitable bargain, openly arrived at and devoid of over-
plan be fair and equitable, and feasible, and not discriminatory in
reaching. Town of Bellair V. Groves, 132 F. 2d 542 (5th Cir. 1942),
cert. denied, 318 U.S. 769 (1943). Other case law that surrounds the
favor of any creditor or class of creditors. There is abundant case law
behind these requirements. Fair and equitable is an equitable doc-
fair and equitable doctrine in Chapter IX is retained in the bill. This
trine. It incorporates the absolute priority rule from Northern Pa-
paragraph also requires that the plan not discriminate unfairly in
cific Ry. V. Boyd, 228 U.S. 482 (1912) and from Case V. Los Angeles
favor of any creditor or class of creditors. This is another aspect of the
Lumber Products, 308 U.S. 106 (1939), which requires that senior
fair and equitable rule, more specifically stated. It prohibits special
treatment of any creditor, such as a fiscal agent or resident of the
creditors be paid in full before any creditor junior to them may be
paid at all. The court determines these priorities based on State
taxing district. See American United Mutual Life Ins. Co. V. City of
law. Fair and equitable in Chapter IX also has included the feasi-
Avon Park, supra.
bility standard expicitly stated in Chapter X and XI, but not pres-
The second paragraph contains the requirement that the plan comply
with all of the provisions of this chapter. This is currently the third
ently found in Chapter IX. Kelley V. Everglades Drainage District,
319 U.S. 412 (1943). It is included in the bill as a codification of the
requirement in section 83 (e) of Chapter IX. The most important of
case law requirement. The feasibility requirement means that there
these is the consent requirement found in section 92, which is the cur-
rent second requirement in section 83 (e). The current second require-
is a reasonable prospect that the petitioner will be able to perform
ment has-been deleted as redundant, because section 92 requires that
under the plan. That is, it must appear to the court, based on the pe-
titioner's past and projected future tax revenues and expenses that
the plan be accepted by the requisite number of creditors before it may
be confirmed. No substantive change is intended, in either the current
it will have enough to make the payments required by the plan.
second or third requirements. Equally important is the requirement
[W]here future tax revenues are the only source to which
that the petitioner pay priority creditors in full in advance of any pay-
creditors can look for payment of their claims, considered
ment under the plan under section 89.
estimates of those revenues consitute the only available basis
The third standard for confirmation is copied from current section
for appraising the respective interests of different classes of
83(e), paragraph 3(4), and merely requires that the court determine
creditors. In order that a court may determine the fairness of
that all amounts to be paid by the petitioner incident to the plan or in
the total amount of cash or securities offered to creditors by
the case have been disclosed and are reasonable. The inclusion of the
the plan, the court must have before it data which will
phrase "by any person" is intended solely to prevent the petitioner
permit a reasonable, and hence an informed, estimate of the
from circumventing the requirement of this paragraph by making
probable future revenues available for the satisfaction of
payments indirectly through some third person for the benefit of the
creditors.
petitioner. It is not intended that the court examine all payments made
to all attorneys and agents that are in any way connected with the
Appropriate facts which might have been con-
case. That might take far too much time for the expeditious confirma-
sidered
are the revenues which have in the past been
tion of the plan.
received from each source of taxation, the present assessed
The fourth requirement is copied from current law, and requires
value of property subject to each tax, the tax rates currently
that the offer of the plan and its acceptance be in good faith. The final
prescribed, the probale effect on future revenues of a revision
requirement is derived from current law, but is made more flexible by
in the tax structure adopted in 1941, the extent of past tax
the use of the phrase "not prohibited from" in place of "authorized
34
35
to." The change is meant to make it easier for the court to make the
requisite finding, for it may be the case that the petitioner proposes to
Subsection (c) governs distribution under the plan. It directs that
take some action which is not prohibited by law, but is not clearly au-
distribution be made by the disbursing agent in accordance with the
thorized either. This, along with the requirement of section 95 (b) (1)
provisions of the plan to creditors whose claims have been allowed
(C), that securities issued under the plan be valid, are all that the
(or deemed allowed) under section 88(a). It also permits distribution
to security holders of record whose claims have not been disallowed.
Committee feel are required to validate the plan.
Subsection (d) establishes a bar date of five years. If the plan re-
quires presentment or surrender of old securities or the performance
SECTION 95
of any other action as a condition to participation under the plan, the
Section 95, derived from section 83 (f), states the effect of the confir-
creditor must take that action within five years after the entry of the
mation of the plan. The provisions of the plan are binding on all of the
order of confirmation. If the creditor does not, then the consideration
petitioner's creditors who had timely notice or actual knowledge of
held by the disbursing agent for distribution to that creditor becomes
the pendency of the case, whether or not they have accepted the plan,
the property of the petitioner, and the creditor is barred from par-
and whether or not their claims have been allowed under section 88.
ticipation under the plan.
Subsection (b) discharges the petitioner from and claims against it
Subsection (e) is new. It allows the court to retain jurisdiction over
that are provided for in the plan as of the time when the plan is con-
the case for as long as it determines is necessary to the successful exe-
firmed, the petitioner deposits the consideration to be distributed under
cution of the plan, and inures that the court may enforce the terms of
the plan with the disbursing agent appointed by the court, and the
any confirmed plan. In some cases, this could be as long as the longest
court has determined that any security SO deposited will constitute,
term of any security issued under the plan, as occurred in the case of
upon distribution. a valid legal obligation of the petitioner, and that
Fort Lee, New Jersey.
any provision made to pay or secure the security is valid. When these
Subsection (f) copies current section 83(g), with minor stylistic
three events have occurred, the petitioner is discharged from the debts
changes. The subsection makes a certified copy of any order or decree in
provided for in the plan. This requires that the court appoint a dis-
the case evidence of the jurisdiction of the court, the regularity of the
bursing agent. The disbursing agent may be any person or entity, in-
proceedings, and the fact that the order was made. It also makes a
cluding the court or the petitioner, that the court chooses. The peti-
certified copy of an order providing for the transfer of property dealt
tioner is not discharged, however, from any claim excepted from dis-
with by the plan evidence of the transfer of title accordingly, and
charge by the plan or the order confirming the plan, or from any claim
specifies that a certified copy of the order, if reordered as deeds are re-
the holder of which had neither timely notice nor actual knowledge
corded, imparts the same notice that a deed, if recorded, would impart.
neither of the petition nor of the plan. It is only fair, and most likely
required by the Due Process Clause, that a creditor's claim not be
SECTION 97
discharged if the creditor knew nothing of the case. Thus, if he knew
Section 97 is copied from current section 83(j). It was originally
of either the petition or the plan, either through timely notice from
added to the statute by the Chandler Act in 1938 to overrule the result
the court or the petitioner, or through his actual knowledge, then his
of In Re City of W est Palm Beach, Fla., 96 F.2d 85 (5th Cir. 1938), in
claim is discharged. Otherwise, it is not.
which acceptances of a plan of composition obtained by the exchange
of debt securities before filing of the petition in Chapter IX were held
SECTION 96
not to count toward the amount of acceptances required for confirma-
This section. largely derived from current section 83(f), is a catch-
tion of the plan. With the elimination of the 51% prior consent re-
all for rules for post-confirmation matters. Subsection (a) requires
quirement in the bill, this section is even more important than it was
the court to fix a time within which the petitioner must deposit with
when added to present Chapter IX. The section contains minor style,
the disbursing agent appointed by the court the consideration to be
but no substantive changes.
distributed under the plan. This is the same disbursing agent required
SECTION 98
by section 95(b), and it is the deposit required by this subsection that
meets the requirement of section 95 (b) (1) (B).
Section 98 is derived from, and is an expansion upon, section 83 (b),
Subsection (h) directs the netitioner to comply with the plan and
paragraph 6, of current law. It also consolidates various other provi-
the orders of the court relative to the plan, and to take all actions
sions in present law. It gives the court power to dismiss the case for
necessary to carry out the plan. The Committee feels that this section
five reasons: 1) want of prosecution; 2) if no plan is proposed within
does not in anv way interfere with the sovereignty of the state, nor
the time fixed or extended by the court; 3) if no proposed plan is ac-
the limitation on the court's interference with the petitioner's political
cepted within the time fixed or extended by the court; 4) if confirma-
or governmental functions found in section 82(c). Of course. there is
tion is refused and no further time is granted for the proposal of other
no sanction for failure to comply with this subsection, save dismissal
plans; or 5) where the court has retained jurisdiction atfer confirma-
of the case (see section 98(1)). The subsection merely requires com-
tion, if the debtor defaults on any of the terms of the plan, or if the
pliance, and is subject to all of the limitations found in sections 82(c)
plan terminates by reason of the occurrence of a condition specified in
and 83.
the plan. Reasons two through four are specific examples of want of
prosecution, and are not intended in any way to limit the scope of the
37
36
CHAPTER IX OF THE BANKRUPTCY ACT
first reason. Subparagraph (5) is new, and more adequately provides
for the petitioner's failure to consummate a plan. In addition, the list
[CHAPTER IX
of five reasons is nonexclusive. The court may dismiss for other grounds
as well. Its power there is defined by the inherent power of a court of
[Sec. 81. This Act and proceedings thereunder are found and
equity.
declared to be within the subject of bankruptcies and, in addition to
SECTION 99
the jurisdiction otherwise exercised, courts of bankruptcy shall exer-
cise original jurisdiction as provided in this chapter for the composi-
The last section of the bill is a separability clause. It follows present
tion of indebtedness of, or authorized by, any of the agencies or instru-
section 81. It specifies that if any provision of the chapter is held in-
mentalities hereinafter named, payable (a) out of assessments or taxes,
valid, the remainder of the chapter shall not be affected by that hold-
or both, levied against and constituting liens upon property in any
ing. The section merely restates a rule of construction nearly univer-
of said agencies or instrumentalities, or (b) out of property acquired
sally followed by the court, of. Carter V. Carter Coal Co., 298 U.S. 238
by foreclosure of any such assessments or taxes or both, or (c) out of
(1936), and eliminates any uncertainty as to the legislative intent,
income derived by such agencies or instrumentalities from any income-
United States V. Jackson, 390 U.S. 570, 585 (1968).
producing property, whether or not secured by a lien upon such
property: (1) Drainage, drainage and levee, reclamation, water, irri-
COST OF LEGISLATION
gation, or other similar districts, commonly designated as agricultural
improvement districts or local improvement districts, organized or
Pursuant to the requirement of Clause 7 of Rule XIII of the Rules
created for the purpose of constructing, improving, maintaining, and
of the House of Representatives, it is estimated that no additional
operating certain improvements or projects devoted chiefly to the
costs will be incurred in carrying out the provisions of this bill.
improvement of lands therein for agricultural purposes; or (2) local
The bill provides for changes in existing law but does not alter or
improvement districts, such as sewer, paving, sanitary, or other similar
change the existing judicial structure already in place to handle the
districts, organized or created for the purposes designated by their
filings and the various Chapters of the Bankruptcy Act.
respective names; or (3) local improvement districts, such as road,
highway, or other similar districts, organized or created for the pur-
STATEMENTS UNDER CLAUSE 2(1) (3) OF RULE X OF THE RULES OF THE
pose of grading, paving, or otherwise improving public streets, roads,
HOUSE OF REPRESENTATIVES
or highways; or (4) public-school districts or public-school authorities
A. Oversight Statement. No oversight findings or recommendations
organized or created for the purpose of constructing, maintaining,
have previously been filed with respect to this area.
and operating public schools or public-school facilities; or (5) local
B. Budget Statement. Clause 2(1) (3) (B) of rule XI is not appli-
improvement districts, such as port, navigation, or other similar dis-
cable. Section 308 (a) of the Congressional Budget Act of 1974 will
tricts, organized or created for the purpose of constructing, improving,
not be implemented this ýear. See last paragraph of House Report
maintaining, and operating ports and port facilities; or (6) incor-
No. 94-25, 94th Congress, 1st Session (1975).
porated authorities, commissions, or similar public agencies organized
C. No estimate or comparison from the Director of the Congressional
for the purpose of constructing, maintaining, and operating revenue-
Budget Office was received.
producing enterprises; or (7) any county or parish or any city, town,
D. No related oversight findings and recommendations have been
village, borough, township, or other municipality Provided, however,
made by the Committee on Government Operations under clause 2(g)
That if any provision of this chapter, or the application thereof to any
(2) of rule X.
such agency or district or class thereof or to any circumstance, is held
invalid, the remainder of the chapter, or the application of such
STATEMENT UNDER CLAUSE 2(1) (4), OF RULE XI OF THE RULES OF
provision to any other or different circumstances, shall not be affected
by such holding.
THE HOUSE OF REPRESENTATIVES CONCERNING ANY INFLATION IM-
PACT ON PRICES AND COSTS IN THE OPERATION OF THE NATIONAL
[SEC. 82. The following terms as used in this chapter, unless a dif-
ECONOMY
follows: ferent meaning is plainly required by the context, shall be construed as
The committee concludes that there will be no inflationary impact
The term "petitioner" shall include any agency or instrumentality
on prices and costs in the operation of the national economy.
referred to in section 81 of this chapter.
The term "security" shall include bonds, notes, judgments, claims,
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
and demands, liquidated or unliquidated, and other evidences of in-
debtedness, either secured or unsecured, and certificates of beneficial
In compliance with clause 3 of Rule XIII of the Rules of the House
interest in property.
of Representatives, changes in existing law made by the bill, as re-
The term "creditor" means the holder of a security or securities.
ported, are shown as follows (existing law proposed to be omitted is.
Any agency of the United States holding securities acquired pur-
enclosed in black brackets, new matter is printed in italics, existing
suant to contract with any petitioner under this chapter shall be
law in which no change is proposed is shown in roman) :
deemed a creditor in the amount of the full face value thereof.
FORD
GERALD
LIBRARY
38
39
[The term "security affected by the plan" means a security as to
the time the petition is filed, a list of the record owners or holders
which the rights of its holder are proposed to be adjusted or modified
of title, legal or equitable, to any real estate adversely affected in the
materially by the consummation of a composition agreement.
proceeding shall also be filed with the petition, and such record owners
[The singular number includes the plural and the masculine gender
or holders of title shall be notified in the manner provided in this
the feminine.
section for creditors and be entitled to hearing by the court upon
[SEC. 83. (a) Any petitioner may file a petition hereunder stating
reasonable application therefor.
that the petitioner is insolvent or unable to meet its debts as they
[The "plan of composition", within the meaning of this chapter,
mature and that it desires to effect a plan for the composition of its
may include provisions modifying or altering the rights of creditors
debts. The petition shall be filed with the court in whose territorial
generally, or of any class of them, secured or unsecured, either through
jurisdiction the petitioner or the major part thereof is located, and,
issuance of new securities of any character, or otherwise, and may
in the case of any unincorporated tax or special-assessment district
contain such other provisions and agreements not inconsistent with
having no officials of its own, the petition may be filed by its governing
this chapter as the parties may desire.
authority or the board or body having authority to levy taxes or assess-
No creditor shall be deemed to be affected by any plan of com-
ments to meet the obligations to be affected by the plan of composition.
position unless the same shall affect his interest materially, and in case
The petition shall be accompanied by payment to the clerk of a filing
any controversy shall arise as to whether any creditor or class of cred-
fee of $100, which shall be in lieu of the fees required to be collected
itors shall or shall not be affected, the issue shall be determined by
by the clerk under other applicable chapters of this title, as amended.
the judge, after hearing, upon notice to the parties interested.
The petition shall state that a plan of composition has been prepared,
For all purposes of this chapter any creditor may act in person or
is filed and submitted with the petition, and that creditors of the
by an attorney or a duly authorized agent or committee. Where any
petitioner owning not less than 51 per centum in amount of the securi-
committee, organization, group, or individual shall assume to act for
ties affected by the plan (excluding, however, any such securities
or on behalf of creditors, such committee, organization, group, or indi-
owned, held. or controlled by the petitioner) have accepted it in writ-
vidual shall first file with the court in which the proceeding is pending
ing. There shall be filed with the petition a list of all known creditors
a list of the creditors represented by such committee, organization,
of the petitioner, together with their addresses SO far as known to
group, or individual, giving the name and address of each such credi-
petitioner, and description of their respective securities showing sepa-
tor, together with a statement of the amount, class, and character of
rately those who have accepted the plan of composition, together
the security held by him, and attach thereto copies of the instrument
with their separate addresses, the contents of which list shall not con-
or instruments in writing signed by the owners of the bonds showing
stitute admissions by the petitioner in a proceeding under this chapter
their authority, and shall file with the list a copy of the contract or
or otherwise. Upon the filing of such a petition the judge shall enter
agreement entered into between such committee, organization, group,
an order either approving it as properly filed under this chapter, if
or individual and the creditors represented by it or them, which con-
satisfied that such petition complies with this chapter and has been
tract shall disclose all compensation to be received, directly or indi-
filed in good faith, or dismissing it, if not SO satisfied.
rectly, by such committee, organization, group, or individual, which
[Whenever the petition seeks to effect a plan for the composition
agreed compensation shall be subject to modification and approval by
of obligations represented by securities, or evidences in any form of
the court.
rights to payment, issued by the petitioner to defray the cost of local
[(b) Upon approving the petition as properly filed, or at any time
improvements and which are payable solely out of the proceeds of
thereafter, the judge shall enter an order fixing a time and place for
special assessments or special taxes levied by the petitioner, or issued
a hearing on the petition, which shall be held within ninety days from
by the petitioner to finance one or more revenue-producing enterprises
the date of said order, and shall provide in the order that notice shall
payable solelv out of the revenues of such enterprise or enterprises,
be given to creditors of the filing of the petition and its approval as
it shall be sufficient if the petitioner aver that the property liable for,
being properly filed, and of the time and place for the hearing. The
or the revenues pledged to the payment of such securities. principal,
judge shall prescribe the form of the notice, which shall specify the
and interest is not of sufficient value, or that the revenues of the enter-
manner in which claims and interests of creditors shall be filed or
prise or enterprises are inadequate to pay same, and that the accrued
evidenced, on or before the date fixed for the hearing. The notice shall
interest on such securities is past due and in default; and the list of
be published at least once a week for three successive weeks in at
creditors to be filed with such petition need contain only the known
least one newspaper of general circulation published within the juris-
claimants of rights based on those securities evidencing the obliga-
diction of the court, and in such other paper or papers having a
tions sought to be composed under this chapter, and such list shall
general circulation among bond dealers and bondholders as may be
include separately the names and addresses of those creditors who
designated by the court, and the judge may require that it may be
have accepted the plan of composition. If the plan of composition
published in such other publication as he may deem proper. The judge
sought to be effected requires a revision of assessments SO that the
shall require that a copy of the notice be mailed, postage prepaid, to
proportion of special assessments or special taxes to be assessed against
each creditor of the petitioner named in the petition at the address of
some of the lands will be different from the proportion in effect at
such creditor given in the petition, or, if no address is given in the
40
41
petition for any creditor and the address of such creditor cannot with
reasonable diligence be ascertained, then a copy of the notice shall be
determination or award to the United States circuit court of appeals
mailed, postage prepaid, to such creditor addressed to him as the judge
for the circuit in which the proceeding under this chapter is pending,
may prescribe. All expense of giving notice as herein provided shall
independently of other appeals which may be taken in the proceeding,
be paid by the petitioner. The notice shall be first published, and the
and such appeal shall be heard summarily.
mailing of copies thereof shall be completed, at least sixty days before
[Such compensation of referees in bankruptcy and special masters
the date fixed for the hearing.
shall not be governed by section 40 of this Act.
[At any time not less than ten days prior to the time fixed for the
[On thirty days' notice by any creditor to petitioner, the judge, if
hearing, any creditor of the petitioner affected by the plan may file an
he finds that the proceeding has not been prosecuted with reasonable
answer to the petition controverting any of the material allegations
diligence, or that it is unlikely that the plan will be accepted by said
therein and setting up any objection he may have to the plan of com-
proportion of creditors, may dismiss the proceeding.
position. The judge may continue the hearing from time to time if the
(c) Upon entry of the order fixing the time for the hearing, or at
percentage of creditors required herein for the confirmation of the plan
any time thereafter, the judge may upon notice enjoin or stay, pend-
shall not have accepted the plan in writing, or if for any reason satis-
ing the determination of the matter, the commencement or con-
factory to the judge the hearing is not completed on the date fixed
tinuation of suits against the petitioner, or any officer or inhabitant
therefor. At the hearing, or a continuance thereof, the judge shall
thereof, on account of the securities affected by the plan, or to
decide the issues presented and unless the material allegations of the
enforce any lien or to enforce the levy of taxes or assessments for
petition are sustained shall dismiss the proceeding. If, however, the
the payment of obligations under any such securities, or any suit
material allegations of the petition are sustained, the judge shall class-
or process to levy upon or enforce against any property acquired by
ify the creditors according to the nature of their respective claims and
the petitioner through foreclosure of any such tax lien or special
interest: Provided, however, That the holders of all claims, regardless
assessment lien, except where rights have become vested, and may
of the manner in which they are evidenced, which are payable without
enter an interlocutory decree providing that the plan shall be tem-
preference out of funds derived from the same source or sources shall
porarily operative with respect to all securities affected thereby and
be of one class. The holders of claims for the payment of which specific
that the payment of the principal or interest, or both, of such secu-
property or revenues are pledged, or which are otherwise given prefer-
rities shall be temporarily postponed or extended or otherwise read-
ence as provided by law, shall accordingly constitute a separate class or
classes of creditors.
justed in the same manner and upon the same terms as if such plan
At the hearing or a continuance thereof the judge may refer any
had been finally confirmed and put into effect, and upon the entry
special issues of fact to a referee in bankruptcy or a special master for
of such decree the principal or interest, or both, of such securities
which have otherwise become due, or which would otherwise become
consideration, the taking of testimony, and a report upon such special
issues of fact, if the judge finds that the condition of his docket is such
due, shall not be or become due or payable, and the payment of all
that he cannot take such testimony without unduly delaying the dis-
such securities shall be postponed during the period in which such
patch of other business pending in his court, and if it appears that such
decree shall remain in force, but shall not, by any order or decree,
special issues are necessary to the determination of the case. Only
in the proceeding or otherwise, interfere with (a) any of the political
under special circumstances shall references be made to a special master
or governmental powers of the petitioner; or (b) any of the prop-
who is not a referee in bankruptcy. A general reference of the case
erty or revenues of the petitioner necessary for essential govern-
to a master shall not be made, but the reference, if any, shall be only
mental purposes; or (c) any income-producing property, unless the
in the form of requests for findings of specific facts.
plan of composition SO provides.
[The court may allow reasonable compensation for the services per-
[Any agency or instrumentality referred to in section 81 of this
formed by such referee in bankruptcy or special master. and the actual
chapter may file a petition for a preliminary stay with the court
and necessary expenses incurred in connection with the proceeding,
referred to in section 83 (a) stating (a) that the petitioner is insolvent
including compensation for services rendered and expenses incurred
or unable to meet its debts as they mature; (b) that it desires to effect
in obtaining the deposit of securities and the preparation of the plan,
a plan for the composition of its debts, a copy of which is filed and
whether such work may have been done by the petitioner or by com-
submitted with the petition; (c) that a creditor of the petitioner
mittees or other representatives of creditors, and may allow reasonable
holding a security affected by the plan or a person claiming to be
compensation for the attorneys or agents of any of the foregoing:
such a creditor (naming him and giving his address and the name and
Provided, however, That no fees, compensation, reimbursement, or
address of his attorney of record, if any), is attempting or threatening
other allowances for attorneys, agents, committees, or other repre-
to obtain payment of said security in preference to other creditors by
sentatives of creditors shall be assessed against the petitioner or paid
means of the commencement or continuation of a suit or process of the
from any revenues, property, or funds of the petitioner except in the
class hereinbefore in this section 83 (c) described; (d) that efforts are
manner and in such sums, if any, as may be provided for in the plan
being made in good faith to the end that creditors of the petitioner
of composition. An appeal may be taken from any order making such
owning not less than 51 per centum in amount of the securities affected
by the plan (excluding, however, any such securities owned, held, or
controlled by the petitioner) shall accept it in writing; (e) that there
42
43
is a reasonable prospect of such acceptance within a reasonable time;
the possibility of any such practice, in which event the judge may
(f) that upon such acceptance the petitioner intends to file a petition
proceed to further consideration of the confirmation of the plan. If it
under section 83 (a) of this chapter; and (g) that the petitioner prays
be found that no such practice exists, then the judge may proceed to
that the judge will upon notice enjoin or stay the commencement or
further consideration of the confirmation of the plan.
continuation of said suit or process. A single petition may seek the
[At the conclusion of the hearing, the judge shall make written
preliminary stay of several suits or processes brought or threatened
findings of fact and his conclusions of law thereon, and shall enter
by the same or different creditors or persons claiming to be creditors.
an interlocutory decree confirming the plan if he finds and is satisfied
The petition shall be accompanied by the filing fee required in section
that (1) it is fair, equitable, and for the best interests of the creditors
(a) of this chapter, unless such fee shall have been paid upon the
and does not discriminate unfairly in favor of any creditor or class
filing of an earlier petition for a preliminary stay involving the same
of creditors; (2) complies with the provisions of this chapter; (3) has
plan, and no further fee shall be required upon the subsequent filing
been accepted and approved as required by the provisions of sub-
of a petition under said section 83 (a). Upon such petition the judge
division (d) of this section; (4) all amounts to be paid by the peti-
shall fix a time and place for hearing and direct that notice thereof
tioner for services or expenses incident to the composition have been
shall be given in such manner as he shall prescribe to said creditor or
fully disclosed and are reasonable; (5) the offer of the plan and its
person claiming to be a creditor and to any other person deemed by
acceptance are in good faith; and (6) the petitioner is authorized by
him to be interested. After such hearings, and upon being satisfied of
law to take all action necessary to be taken by it to carry out the plan.
the truth of the allegations of the petition, the judge may, in his dis-
If not SO satisfied, the judge shall enter an order dismissing the pro-
cretion, except where rights have become vested, enjoin or stay the
ceeding. No case shall be reversed or remanded for want of specific
commencement and continuation of said suit or process until a date
or detailed findings unless it is found that the evidence is insufficient
fixed by him in his order not exceeding sixty days from the date of
to support one or more of the general findings required in this section.
entry thereof. The judge shall retain jurisdiction to vacate said in-
[Before a plan is confirmed, changes and modifications may be made
junction or stay, or to extend the period thereof for one additional
therein with the approval of the judge after hearing upon such notice
period of not exceeding sixty days, upon good cause shown.
to creditors as the judge may direct, subject to the right of any creditor
[(d) The plan of composition shall not be confirmed until it has
who shall previously have accepted the plan to withdraw his accept-
been accepted in writing, by or on behalf of creditors holding at least
ance, within a period to be fixed by the judge and after such notice as
two-thirds of the aggregate amount of claims of all classes affected by
the judge may direct, if, in the opinion of the judge, the change or
such plan and which have been admitted by the petitioner or allowed
modification will be materially adverse to the interest of such creditor,
by the judge, but excluding claims owned, held, or controlled by the
and if any creditor having such right of withdrawal shall not with-
petitioner: Provided, however, That it shall not be requisite to the con-
draw within such period, he shall be deemed to have accepted the plan
firmation of the plan that there be such acceptance by any creditor
as changed or modified Provided, however. That the plan as changed
or class of creditors (a) whose claims are not affected by the plan;
or modified shall comply with all the provisions of this chapter and
or (b) if the plan makes provision for the payment of their claims in
shall have been accepted in writing by the petitioner. Either party
cash in full; or (c) if provision is made in the plan for the protection
may appeal from the interlocutory decree as in equity cases. In case
of the interests, claims, or lien of such creditors or class of creditors.
said interlocutory decree shall prescribe a time within which any
(e) Before concluding the hearing, the judge shall carefully ex-
action is to be taken, the running of such time shall be suspended in
amine all of the contracts, proposals, acceptances, deposit agreements
case of an appeal until final determination thereof. In case said decree
and all other papers relating to the plan, specifically for the purpose
is affirmed, the judge may grant such time as he may deem proper for
of ascertaining if the fiscal agent, attorney, or other person, firm, or
the taking of such action.
corporation promoting the composition, or doing anything of such a
(f) In an interlocutory decree confirming the plan is entered as
nature, has been or is to be compensated, directly or indirectly, by both
provided in subdivision (e) of this section, the plan and said decree of
the petitioner and the creditors thereof, or any of such creditors—
confirmation shall become and be binding upon all creditors affected
either by fee, commission, or other similar payment, or by transfer or
by the plan, if within the time prescribed in the interlocutory decree,
exchange of bonds or other evidence of indebtedness whereby a profit
or such additional time as the judge may allow, the money, securities,
could accrue-and shall take evidence under oath to make certain
or other consideration to be delivered to the creditors under the terms
whether or not any such practice obtains or might obtain.
of the plan shall have been deposited with the court or such disbursing
[After such examination the judge shall make an adjudication of
agent as the court may appoint or shall otherwise be made available
this issue, as a separate part of his interlocutory decree, and if it be
for the creditors. And thereupon the court shall enter a final decree
found that any such practice exists, he shall forthwith dismiss the pro-
determining that the petitioner has made available for the creditors
ceeding and tax all of the costs against such fiscal agent, attorney, or
affected by the plan the consideration provided for therein and is
other person, firm, or corporation promoting the composition, or doing
discharged from all debts and liabilities dealt with in the plan except
anything of such a nature, or against the petitioner, unless such plan be
as provided therein, and that the plan is binding upon all creditors
modified within the time to be allowed by the judge SO as to eliminate
affected by it, whether secured or unsecured, and whether or not their
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44
such claims are provable under section 63 of this Act and whether
secured or unsecured, liquidated or unliquidated, fixed or
claims have been filed or evidenced, and, if filed or evidenced, whether
or not allowed, including creditors who have not, as well as those
contingent; (2) "court" means court of bankruptcy in which the case is
who have, accepted it. If securities are deposited by the petitioner
pending, or a judge of such court;
with the court or disbursing agent for delivery to the creditors, such
(3) "creditor" means holder (including the United States, a
final decree shall not be entered unless the court finds and adjudicates
State, or subdivision of a State) of a claim against the petitioner;
that said securities have been lawfully authorized and, upon delivery,
(4) "claim affected by the plan" means claim as to which the
will constitute valid obligations of the petitioner, and that the pro-
rights of its holder are proposed to be materially and adversely
visions made to pay and secure payment thereof are valid.
adjusted or modified by the plan;
[(g) A certified copy of the final decree, or of any other decree or
(5) "debt" means claim allowable under section 88(a);
order entered by the court or the judge thereof, in a proceeding under
(6) "petitioner" means agency, instrumentality, or subdivision
this chapter, shall be evidence of the jurisdiction of the court, the
which has filed a petition under this chapter;
regularity of the proceedings, and the fact that the decree or order was
(7) "plan" means plan filed under section 90;
made. A certified copy of an order providing for the transfer of any
(8) "special tax payer" means record owner or holder of title,
property dealt with by the plan shall be evidence of the transfer of title
legal or equitable, to real estate against which has been levied a
accordingly, and, if recorded as conveyances are recorded, shall impart
special assessment or special tax the proceeds of which are the
the same notice that a deed, if recorded, would impart.
sole source of payment for obligations issued by the petitioner
[(h) This chapter shall not be construed as to modify or repeal
to defray the costs of local improvements; and
any prior existing statute relating to the refinancing or readjustment
(9) "special tax payer affected by the plan" means a special
of indebtedness of municipalities, political subdivisions, or districts:
tax payer with respect to whose real estate the plan proposes to
Provided, however, That the initiation of proceedings or the filing of
increase the proportion of special assessments or special taxes
a petition under section 80 of this Act shall not constitute a bar to the
referred to in paragraph (8) of this section assessed against that
same agency or instrumentality initiating a new proceeding under
real estate.
section 81 of this chapter.
Sec. 82. JURISDICTION AND POWERS OF COURT.-
[(i) Nothing contained in this chapter shall be construed to limit
(a) Jurisdiction.-The court in which a petition is filed under this
or impair the power of any State to control, by legislation or otherwise,
chapter shall exercise exclusive original jurisdiction for the adjust-
any municipality or any political subdivision of or in such State in
ment of the petitioner's debts, and for the purposes of this chapter,
the exercise of its political or governmental powers, including expendi-
shall have exclusive jurisdiction of the petitioner and its property,
tures therefor: Provided, however, That no State law prescribing a
wherever located.
method of composition of indebtedness of such agencies shall be bind-
(b) Powers.-After the filing of a petition under this chapter the
ing upon any creditor who does not consent to such composition, and
court may-
no judgment shall be entered under such State law which would bind
(1) permit the petitioner to reject executory contracts and
a creditor to such composition without his consent.
unexpired leases of the petitioner, after hearing on notice to the
[(j) The partial completion or execution of any plan of composi-
parties to such contracts and to such other parties in interest as
tion as outlined in any petition filed under the terms of this Act by
the court may designate;
the exchange of new evidences of indebtedness under the plan for
(2) during the pendency of a case under this chapter, or after
evidences of indebtedness covered by the plan, whether such partial
the confirmation of the plan if the court has retained jurisdiction
completion or execution of such plan of composition occurred before
under section 96 (e), after hearing on such notice as the court may
or after the filing of said petition, shall not be construed as limiting or
prescribe and for cause shown, permit the issuance of certificates
prohibiting the effect of this title, and the written consent of the
of indebtedness for such consideration as is approved by the court,
holders of any securities outstanding as the result of any such partial
upon such terms and conditions, and with such security and prior-
completion or execution of any plan of composition shall be included
ity in payment over existing obligations, secured or unsecured, as
as consenting creditors to such plan of composition in determining
in the particular case may be equitable; and
the percentage of securities affected by such plan of composition.]
(3) exercise such other powers as are not inconsistent with the
provisions of this chapter.
CHAPTER IX
(c) LIMITATION.-Unless the petitioner consents or the plan so pro-
vides, the court shall not, by any order or decree, in the case or other-
ADJUSTMENT OF DEBTS OF POLITICAL SUBDIVISIONS AND PUBLIC AGENCIES
wise, interfere with-
AND INSTRUMENTALITIES
(1) any of the political or governmental powers of the peti-
SEC. 81. CHAPTER IX DEFINITIONS.-A8 used in this chapter the
tioner; (2) any of the property or revenues of the petitioner; or
term-
(1) "claim" includes all claims of whatever character against
(3) any income-producing property.
the petitioner or the property of the petitioner, whether or not
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47
(d) DESIGNATION OF JUDGE.-Upon the filing of a petition the chief
the first sentence of this subsection be mailed, postage prepaid, to each
judge of the court in the district in which the petition is filed shall
creditor named in the list required by subsection (b) at the address
immediately notify the chief judge of the circuit court of appeals of
of such creditor given in the list, or, if no address is given in the list
the circuit in which the district court is located, who shall designate
for any creditor and the address of such creditor cannot with reason-
the judge of the district court to conduct the proceedings under this
able diligence be ascertained, then a copy of the notice may, if the court
chapter.
80 determines, be mailed, postage prepaid, to such creditor addressed
SEC. 83. RESERVATION OF STATE POWER TO CONTROL GOVERNMENTAL
as the court may prescribe. All expense of giving notice required by
FUNCTIONS OF POLITICAL SUBDIVISIONS.-Nothing contained in the
this subsection shall be paid by the petitioner, unless the court for
chapter shall be construed to limit or impair the power of any State
good cause determines that the cost of notice in a particular instance
to control, by legislation or otherwise, any municipality or any politi-
should be borne by another party. The notice shall be first published as
cal subdivision of or in such State in the exercise of its political or
soon as practicable after the filing of the petition, and the mailing of
governmental powers, including expenditures therefor.
copies of the notice shall be completed as soon as practicable after the
SEC. 84. ELIGIBILITY FOR RELIEF.-Any State's political subdivision
filing of the list required by subsection (b).
or public agency or instrumentality which is not prohibited by State
(e) STAY OF ENFORCEMENT OF CLAIMS AGAINST PETITIONER.-
law from filing a petition under this chapter is eligible for relief under
(1) EFFECT OF FILING A PETITION.-A petition filed under this
this chapter if it is insolvent or unable to meet its debts as they
chapter shall operate as a stay of the commencement or the con-
mature, and desires to effect a plan to adjust its debts.
tinuation of a judicial or other proceeding against the petitioner,
SEC. 85. PETITION AND PROCEEDINGS RELATING TO PETITION.-
its property, or an officer or inhabitant of the petitioner, which
(a) PETITION.-An entity eligible under section 84 may file a petition
seeks to enforce any claim against the petitioner, or of an act
for relief under this chapter. In the case of an unincorporated tax or
or the commencement or continuation of a judicial or other pro-
special assessment district having no officials of its own, the petition
ceeding which seeks to enforce a lien upon the property of the
may be filed by its governing authority or the board or body having
petitioner, and shall operate as a stay of the enforcement of any
authority to levy taxes or assessments to meet the obligations of the
set-off or counterclaim relating to a contract, debt, or obligation
district. Any party in interest may file a complaint with the court, not
of the petitioner.
later than 15 days after the publication of notice required by subsection
(2) DURATION OF AUTOMATIC STAY.-Except as it may be ter-
(d) is completed, objecting to the filing of the petition. The court
minated, annulled, modified, or conditioned by the court under
shall, to the extent practicable, hear and determine all such complaints
the terms of this section, the stay provided for in this subsection
in a single proceeding.
shall continue until the case is closed or dismissed, or the property
(b) List.-The petitioner shall file with the court a list of the peti-
subject to the lien is, with the approval of the court, abandoned or
tioner's creditors, insofar as practicable. If an identification of any of
transferred.
the petitioner's creditors is impracticable, the petitioner shall state in
(3) RELIEF FROM AUTOMATIC STAY.-Upon the filing of a com-
the petition the reasons such identification is impracticable. If the list
plaint seeking relief from a stay provided for by this section, the
is not filed with the petition, the petitioner shall file the list at such
court may, for cause shown, terminate, annul, modify, or condi-
later time as the court, upon its own motion or upon application of
tion such stay.
the petitioner, prescribes.
(4) OTHER STAYS.-The commencement or continuation of any
(c) VENUE AND FEES.-The petition and any accompanying papers,
other act or proceeding may be stayed, restrained, or enjoined by
together with a filing fee of $100, shall be filed with a court in a district
the court, upon notice to each person and entity against whom
in which the petitioner is located.
such order would apply, and for cause shown. The petitioner shall
(d) NOTICE.-The court shall give notice of the filing or dismissal
not be required to give security as a condition to an order under
of the petition to the State in which the petitioner is located, to the
this paragraph.
Securities and Exchange Commission, and to creditors. The notice
(f) UNENFORCEABILITY OF CERTAIN CONTRACTUAL PROVISIONS.-A pro-
shall also state that a creditor who files with the court a request, setting
vision in a contract or lease, or in any law applicable to such a contract
forth that creditor's name and address and the nature and amount of
or lease, which terminates or modifies, or permits a party other than
that creditor's claim. shall be given notice of any other matter in which
the petitioner to terminate or modify, the contract or lease because of
that creditor has a direct and substantial interest. The notice required
the insolvency of the petitioner or the commencement of a case under
by the first sentence of this subsection shall be published at least once
this Act is not enforceable if any defaults in prior performance of the
a week for three successive weeks in at least one newspaper of general
petitioner are cured and adequate assurance of future performance is
circulation published within the jurisdiction of the court, and in such
provided.
other papers having a general circulation among bond dealers and
(g) RECOVERY OF SET-OFF.-Any set-off which relates to a contract,
bondholders as may be designated by the court. The court may require
debt, or obligation of the petitioner and which set-off was effected
that it be published in such other publication as the court may deem
within four months prior to the filing of the petition, is voidable and
proper. The court shall require that a copy of the notice required by
recoverable by the petitioner after hearing on notice. The court may
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49
require as a condition to recovery that the petitioner furnish adequate
protection for the realization by the person or entity against whom or
bursement, or other attowances for an attorney, agent, or representa-
which recovery is sought of the claim which arises by reason of the
tive of creditors shall be assessed against the petitioner or paid from
recovery.
any revenues, property, or funds of the petitioner except in the man-
SEC. 86. REPRESENTATION OF CREDITORS.-
ner and in such sums, if any, as may be provided for in the plan.
(a) REPRESENTATION AND DISCLOSURE.-Any creditor may act in
(c) JOINT ADMINISTRATION.-If more than one petition by related
person or by an attorney or a duly authorized agent or committee.
entities are pending in the same court, the court may order a joint
Every person representing more than one creditor shall file with the
administration of the cases.
court a list of the creditors represented by such person, giving the
SEC. 88. CLAIMS.-
name and address of each such creditor, together with a statement of
(a) ALLOWANCE OF CLAIMS.-In the absence of an objection by a
the amount, class, and character of the claim held by that creditor, and
party in interest, or of a filing of a proof of claim, the claim of a cred-
shall attach to the list a copy of the instrument signed by the holder
itor that is not disputed, contingent, or unliquidated, and appears in the
of such claim showing such person's authority, and shall file with the
list filed by the petitioner under section 85 (b) shall be deemed allowed.
list a copy of the contract or agreement entered into between such per-
The court may set a date by which proofs of other claims shall be
son and the creditors represented by that person. Such person shall dis-
filed. If the court does not set a date, such proofs of other claims shall
close all compensation to be received, directly or indirectly, by that
be filed before the entry of an order confirming the plan. Within
person. That compensation shall be subject to modification and ap-
thirty days after the filing by the petitioner of the list under section
proval by the court.
85(b), the court shall give written notice to each person and entity
(b) MULTIPLE COMPENSATION.-The court shall examine all of the
whose claim is listed as disputed, contingent, or unliquidated, inform-
contracts, proposals, acceptances, deposit agreements, and all other
ing each such person or entity that a proof of claim must be filed with
papers relating to the plan, specifically for the purpose of ascertaining
the court within the time fixed under this subsection. If there is no
if any person promoting the plan, or doing anything of such a nature,
objection to such claim, the claim shall be deemed allowed. If there
has been or is to be compensated, directly or indirectly, by both the
is an objection, the court shall hear and determine the objection.
petitioner and any of its creditors, and shall take evidence under oath
to determine whether any such compensation has occurred or is to
(b) CLASSIFICATION OF CREDITORS.-The court shall designate classes
occur. After such examination the court shall make an adjudication of
of creditors whose claims are of substantially similar character and
the members of which enjoy substantially similar rights, consistent
this issue, and if it be found that any such compensation has occurred
with the provisions of section 89, except that the court may create a
or is to occur, the court shall dismiss the petition and tax all of the
separate class of creditors having unsecured claims of less than $100
costs against the person promoting the plan or doing anything of such
a nature and receiving such multiple compensation, or against the
for reasons of administrative convenience.
petitioner, unless such plan is modified, within the time to be allowed
(c) DAMAGES UPON REJECTION OF EXECUTORY CONTRACTS.-If an ex-
ecutory contract or an unexpired lease is rejected under a plan or under
by the court, so as to eliminate the possibility of such compensation,
section 82(b), any person injured by such rejection may assert a claim
in which event the court may proceed to further consideration of the
confirmation of the plan.
against the petitioner. The rejection of an executory contract or un-
SEC. 87. REFERENCE AND JOINT ADMINISTRATION.-
expired lease constitutes a breach of the contract or lease as of the date
of the commencement of the case under this chapter. The claim of a
(a) REFERENCE.-The court may refer any special issue of fact
landlord for injury resulting from the rejection of an unexpired lease
to a referee in bankruptcy for consideration, the taking of testimony,
and a report upon such special issue of fact, if the court finds that
of real estate or for damages or indemnity under a covenant contained
in such lease shall be allowed, but shall be limited to an amount not
the condition of its docket is such that it cannot take such testimony
to exceed the rent, without acceleration, reserved by such lease for the
without unduly delaying the dispatch of other business pending in
year next succeeding the date of the surrender of the premises to the
the court, and if it appears that such special issue is necessary to the
landlord or the date of reentry of the landlord, whichever first occurs,
determination of the case. A reference to a referee in bankruptcy
whether before or after the filing of the petition, plus unpaid accrued
shall be the exception and not the rule. The court shall not make a
rent, without acceleration. up to the date of such surrender or reentry.
general reference of the case, but may only request findings of specific
The court shall scrutinize the circumstances of an assignment of a
facts.
future rent claim and the amount of the consideration paid for such
(b) EXPENSES.-The court may allow reasonable compensation for
assignment in determining the amount of damages allowed the as-
the actual and necessary expenses incurred in connection with the
signee of that claim.
case, including compensation for services rendered and expenses in-
SEC. 89. PRIORITIES.-The following shall be paid in full in advance
curred in obtaining the deposit of securities and the preparation of
of the payment of any distribution to creditors under a plan, in the
the plan, whether such work has been done by the petitioner or by a
following order:
representative of creditors, and may allow reasonable compensation
(1) The costs and expenses of administration which are in-
for an attorney or agent of any of them. No fee, compensation, reim-
curred subsequent to the filing of a petition under this chapter.
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51
(2) Debts or consideration owed for services or materials ac-
(d) EXCEPTION.-It is not requisite to the confirmation of the plan
tually provided within four months before the date of the filing of
that there be such acceptance. by any creditor or class of creditors—
the petítion under this chapter.
(1) whose claims are not affected by the plan;
(3) Debts owing to any person or entity, which by the laws of
(2) if the plan makes provision for the payment of their claims
the United States (other than this Act) are entitled to priority.
in cash in full; or
SEC. 90. FILING AND TRANSMISSION OF PLAN AND MODIFICATIONS.-
(3) if provision is made in the plan for the protection of the
(a) FILING.- The petitioner shall file a plan for the adjustment of
interests, claims, or lien of such creditor or-class of creditors.
the petitioner's debts. If such plan is not filed with the petition, the
(e) ACCEPTANCE OF MODIFICATION.-If the court finds that a proposed
petitioner shall file the plan at such later time as the court, upon its own
modification does not materially and adversely affect the interest of a
motion or upon application of the petitioner, prescribes. At any time
creditor, the modification shall be deemed accepted by that creditor if
prior to the confirmation of a plan, the petitioner may file a modifica-
that creditor has previously accepted the plan. If the court determines
tion of the plan.
that a modification does materially and adversely affect the interest of
(b) TRANSMISSION OF PLAN AND MODIFICATIONS.-As soon as practi-
a creditor, that creditor, shall be given notice of the proposed modifica-
cable after the plan or any modification of the plan has been filed, the
tion and the time allowed for its acceptance or rejection. The number
court shall fix a time within which creditors may accept or reject the
of acceptances of the plan as modified required by subsection (b) shall
plan and any modification of the plan, and shall transmit by mail a
be obtained. The plan as modified shall be deemed to have been ac-
copy of such plan or modification, or a summary and any analysis of
cepted by any creditor who accepted the plan and who fails to file a
such plan or modification, a notice of the time within which the plan
written rejection of the modification with the court within such reason-
or modification may be accepted or rejected, and a notice of the right
able time as shall be allowed in the notice to that creditor of the pro-
to receive a copy, if it has not been sent, of such plan or modification, to
posed modification.
each of the creditors affected by the plan, to each of the special tax
SEC. 93. OBJECTION TO PLAN.-A creditor affected by the plan or a
payers affected by the plan, and to each such other party in interest as
special tax payer affected by the plan may file a complaint with the
the court may designate. Upon request by a recipient of such summary
court objecting to the confirmation of the plan. The Securities and
and notice, the court shall transmit by mail a copy of the plan or
Exchange Commission may also file a complaint with the court ob-
modification to that recipient.
jecting to the confirmation of the plan, but in the case of a complaint
SEC. 91. PROVISIONS OF PLAN.-A petitioner's plan may include pro-
filed under this section, the Securities and Exchange Commission may
visions modifying or altering the rights of creditors generally, or of
not appeal or file any petition for appeal. A complaint objecting to the
any class of them, secured or unsecured, either through issuance of
confirmation of the plan may be filed with the court any time prior to
new securities of any character, or otherwise, and may contain such
ten days before the hearing on the confirmation of the plan, or within
other provisions and agreements not inconsistent with this chapter as
such other time as prescribed by the court.
the parties may desire, including provisions for the rejection of any
SEC. 94. CONFIRMATION.-
executory contract or unexpired lease.
(a) HEARING ON CONFIRMATION.-Within a reasonable time after
SEC. 92. ACCEPTANCE.-
the expiration of the time set by the court within which a plan and any
(a) Who MAY ACCEPT OR REJECT.-Unless a claim has been disal-
modifications of the plan may be accepted or rejected, the court shall
lowed or is not materially and adversely affected, any creditor included
hold a hearing on the confirmation of the plan and any modifica-
on the list filed under section (b) or who files a proof of claim and
tions of the plan. The court shall give notice of the hearing and of the
whose claim is not then disputed, contingent, or unliquidated as to
time allowed for filing objections to all parties entitled to object under
amount, and any security holder of record as of the date of the trans-
section 93.
mittal of information under section 90(b), may accept or reject the
(b) CONDITIONS FOR CONFIRMATION.-The court shall confirm the
plan and any modification of the plan within the time fixed by the
plan if satisfied that—
court. Notwithstanding an objection to a claim, the court may tempo-
(1) the plan is fair and equitable and feasible and does not dis-
rarily allow such claim in such amount as the court deems proper for
criminate unfairly in favor of any creditor or class of creditors;
the purpose of acceptance or rejection under this section.
(2) the plan complies with the provisions of this chapter;
(b) GENERAL RULE.-Except as otherwise provided in this section,
(3) all amounts to be paid by the petitioner or by any person for
the plan may be confirmed only if it has been accepted in writing by
services and expenses in the case or incident to the plan have been
or on behalf of creditors holding at least two-thirds in amount of the
fully disclosed and are reasonable;
claims of each class.
(4) the offer of the plan and its acceptance are in good faith;
(c) COMPUTING ACCEPTANCE.-The two-thirds majority required by
and
subsection (b) is two-thirds in amount of the claims of creditors who
(5) the petitioner is not prohibited by law from taking any
file an acceptance or rejection within the time fixed by the court, but
action necessary to be taken by it to carry out the plan.
not including claims held, or controlled by the petitioner, or claims of
SEC. 95. EFFECT OF CONFIRMATION.-
creditors specified in subsection (d).
(a) PROVISIONS OF PLAN BINDING.-The provisions of a confirmed
plan shall be binding on the petitioner and on all creditors who had
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an order providing for the transfer of any property dealt with by the
timely notice or actual knowledge of the petition or plan, whether or
plan shall be evidence of the transfer of title accordingly, and, if
not their claims have been allowed under section 88, and whether or
recorded as conveyances are recorded, shall impart the same notice
not they have accepted the plan.
that a deed, if recorded, would impart.
(b) DISCHARGE.-
SEC. 97. EFFECT OF EXCHANGE OF DEBT SECURITIES BEFORE DATE OF
(1) The petitioner is discharged from all claims against it provided
THE PETITION.-The exchange of new debt securities under the plan
for in the plan except as provided in paragraph (2) of this subsection
for claims covered by the plan, whether the exchange occurred before
as of the time when-
or after the date of the petition, does not limit or impair the effective-
(A) the plan has been confirmed;
ness of the plan or of any provision of this chapter. The written con-
(B) the petitioner has deposited the consideration to be dis-
sents of the holders of any securities outstanding as the result of any
tributed under the plan with a disbursing agent appointed by the
such exchange under the plan shall be included as acceptances of such
court; and
plan in computing the acceptance required under section 92.
(C) the court has determined-
SEC. 98. DISMISSAL.-The court may dismiss the case after hearing
(i) that any security so deposited will constitute upon dis-
on notice-
tribution a valid legal obligation of the petitioner; and
(1) for want of prosecution;
(ii) that any provision made to pay or secure payment of
(2) if no plan is proposed within the time fixed or extended by
such obligation is valid.
the court;
(2) The petitioner is not discharged under paragraph (1) of this
(3) if no proposed plan is accepted within the time fixed or
subsection from any claim-
extended by the court;
(A) excepted from discharge by the plan or order confirming
(4) if confirmation is refused and no further time is granted for
the plan; or
the proposal of other plans; or
(B) whose holder, prior to confirmation, had neither timely
(5) where the court has retained jurisdiction after confirmation
notice nor actual knowledge of the petition or plan.
SEC. 96. POSTCONFIRMATION M ATTERS.-
of a plan-
(A) if the debtor defaults in any of the terms of the plan;
(a) TIME ALLOWED FOR DEPOSIT UNDER THE PLAN.-Prior to or
or
promptly after confirmation of the plan, the court shall fix a time
(B) if a plan terminates by reason of the happening of a
within which the petitioner shall deposit with the disbursing agent
condition specified therein.
appointed by the court any consideration to be distributed under the
SEC. 99. SEPARABILITY-If any provision of this chapter or the
plan.
application thereof to any agency, instrumentality, or subdivision is
(b) DUTIES OF PETITIONER.-The petitioner shall comply with the
held invalid, the remainder of the chapter, or the application of such
plan and the orders of the court relative to the plan, and shall take all
provision to any other agency or instrumentality or political subdivi-
actions necessary to carry out the plan.
sion shall not be affected by such holding.
(c) DISTRIBUTION.-Distribution shall be made in accordance with
the provisions of the plan to creditors whose claims have been allowed
under section 88. Distribution may be made at the date the order con-
firming the plan becomes final to holders of securities of record whose
claims have not been disallowed.
(d) COMPLIANCE DATE.-When a plan requires presentment or sur-
render of securities or the performance of any other action as a condi-
tion to participation under the plan, such action shall be taken not
later than five years after the entry of the order of confirmation. A
person who has not within such time presented or surrendered that per-
son's securities or taken such other action required by the plan shall
not participate in any distribution under the plan, and the considera-
tion deposited with the disbursing agent for distribution to such per-
son shall become the property of the petitioner.
(e) CONTINUING JURISDICTION.-The court may retain jurisdiction
over the case for such period of time as the court determines is neces-
sary for the successful execution of the plan.
(f) ORDER OR DECREE AS EVIDENCE AND NOTICE.-A certified copy of
any order or decree entered by the court in a case under this chapter
shall be evidence of the jurisdiction of the court, the regularity of the
proceedings, and the fact that the order was made. A certified copy of
SEPARATE VIEWS OF HON. ELIZABETH HOLTZMAN
ON H.R. 10624
The Committee bill, as far as it goes, is a well-drafted, technically
sound revision of the law on municipal bankruptcy. I supported it,
however, only with the gravest misgivings.
I. THE BILL FAILS To PROVIDE OPERATING CASH
This bill has a serious, if not fatal, flaw. It fails to provide any
effective mechanism for a municipality to raise operating cash while
in bankruptcy.
The Judiciary Committee recognized the need to provide a mecha-
nism for raising operating capital. It understood that operating capital
is essential if a municipability in bankruptcy is to survive-that is, to
provide such services as police and fire protection, garbage pick-ups,
and education. If New York City, for example, had defaulted in early
December, even if it had stopped all payments for debt service, it would
have had a net operating deficit for the subsequent five months of $1.2
billion.
The Judiciary Committee allows a municipality to raise operating
capital through the device of "certificates of indebtedness." Thus, the
Committee contemplates that after bankruptcy, a municipality would
with court approval sell its bonds-now called certificates of indebted-
ness-and thereby raise operating cash. But as a practical matter,
certificates of indebtedness of a bankrupt municipality are not likely
to be marketable in the absence of a federal guarantee.
The Subcommittee on Civil and Constitutional Rights held no
hearings on the marketability of unguaranteed certificates. We do
know, however, that in the 1930's. when the first municipal bankruptcy
provisions were enacted, municipalities needed loans or loan guaran-
tees from the Reconstruction Finance Corporation in order to continue
to operate. More recently, trustee's certificates in the Penn Central
bankruptcy were not salable without a federal guarantee.
A mechanism for guaranteeing bonds of a municipality in bank-
ruptcy is contained in the House Banking and Currency bill, H.R.
10481. If, however, the Judiciary Committee's bill (H.R. 10624)
reaches the floor without any such mechanism provided in an accom-
panying bill, I will offer an amendment to ensure that federal guaran-
tees are available for a bankrupt municipality in need of operating
cash.
Any bankruptcy bill that fails to provide an effective mechanism for
a municipality to raise operating cash during bankruptcy is an illusory
remedy-a court-supervised road to disaster.
(55)
56
II. MUNICIPAL BANKRUPTCY Is UNSOUND NATIONAL POLICY
Bankruptcy does not represent a sensible national policy for dealing
with the fiscal problems of municipalities.
Many large municipalities in this country are in serious trouble.
The basic reasons are: an increasing welfare burden, high unemploy-
ment and the steady flight of middle class taxpayers and business
SUPPLEMENTAL VIEWS OF MESSRS. BUTLER, KIND-
which has eroded the city's tax base. These problems are rooted in
NESS, HUTCHINSON, McCLORY, MOORHEAD OF CALI-
national policy and are the direct result of federal action or inaction.
FORNIA, AND HYDE, WITH MR. WIGGINS CONCURRING
While fiscal mismanagement of cities can aggrevate these problems
IN PART AND DISSENTING IN PART
and bring crises to a head, the economic viability of our cities cannot
be assured until these underlying problems are resolved.
H.R. 10624, which revises Chapter IX of the Bankruptcy Act, rep-
Bankruptcy provides no answer to the root causes of municipal
resents a bipartisan effort to modernize a highly technical law.
fiscal troubles or the problems of mismanagement. In fact, bank-
Original proposals of the administration and Democrat leadership
ruptcy, with its uncertainties and stigma, may well aggravate these
were melded into a bill that was favorably reported by a unanimous
problems. If municipal services continue to deteriorate and taxes
House Committee on the Judiciary on November 18, 1975, the result of
continue to rise, the departure of business and the middle class. will
careful deliberations of both the Subcommittee and full Committee.
undoubtedly accelerate. Thus, the affected city will become even less
Forty amendments were offered, of which twenty-five were accepted,
capable than before of meeting the needs of its citizens.
most often unanimously. The finished product contains clearly indi-
Bankruptcy is an exceedingly complex, time consuming, and cum-
cated improvements in the present law and is one in which all Members
bersome mechanism for resolving a cities problems with its creditors.
of the House Committee on the Judiciary can take pride.
It is reported that the average corporate reorganization case in the
While there are areas of disagreement and concern, the need for the
Southern District of New York takes eight years to resolve. How
legislation is clear and we urge its immediate adoption. We do think
much longer will it take to resolve a municipal bankruptcy under a
it appropriate, however, to point out certain concerns which remain.
new and untried bankruptcy law? What assurance is there that the
well being of 8 million people will be adequately protected during
I
this protracted litigation?
Finally, making it easier for municipalities to go into bankruptcy
RE REJECTION OF EXECUTORY CONTRACTS
takes us down an unknown and possibly dangerous path. Municipal
bonds may now become a vastly more risky investment. If so, it may
Chapter X of the Bankruptcy Act concerns corporate reorganiza-
be more difficult and costly for municipalities to borrow money in
tions; Chapter XI concerns arrangements in bankruptcy; and Chapter
order to build schools, hospitals, and other public buildings, or even
XIII permits wage earner extensions and compositions. In each of
to bridge the seasonal gaps between revenues and expenditures. The
these instances the trustee in bankruptcy or the debtor in possession,
consequences of such a reduction in municipal credit for the nation's
as the case may be, is permitted to reject executory contracts. No such
economy and taxpayers are potentially enormous.
power exists under Chapter IX of the present Bankruptcy Act which
Despite all these misgivings, I supported H.R. 10624 because we
is, of course, concerned with municipal bankruptcy.
on the Judiciary Committee were forced to choose between the wrong
Section (b) (1) of the legislation now before us permits the peti-
answer to the fiscal problems of major municipalities and no answer
tioning municipality, upon filing its petition and thereafter, to reject
at all. Congress does not face the same choice. I hope it will act
executory contracts with the permission of the court.
wisely, in the long term interest of all Americans, to produce legisla-
Although there are no standards in the legislation for determining
tion designed to remedy the basic causes of the crisis of our cities
the circumstances under which rejection of executory contracts will
legislation designed to prevent rather than facilitate municipal
be permitted by the court, existing case law makes it clear that execu-
tory contracts must be burdensome or onerous before they may be
bankruptcy.
ELIZABETH HOLTZMAN.
rejected. Although there are problems involved in determining exactly
what constitutes an executory contract, it is apparent that the term
encompasses substantially all contractual obligations of the petition-
ing municipality including vendor contracts and collective bargaining
agreements.
The Committee report indicates that even though executory collec-
tive bargaining agreements may be rejected, certain collective bargain-
ing agreement may have to be renegotiated pursuant to State law and
existing terms and conditions of employment would have to be main-
tained subsequent to rejection because of certain provisions of State
law.
(57)
58
59
Nothing could be further from the truth. No evidence was taken or
court to permit a petitioning municipality to reject an executory
memoranda of law submitted to the Committee for discussion on that
contract.
point. No discussion of this matter took place in the Subcommittee
II
or the full Committee.
We understand that conversations took place between certain mem-
RE POWER To ISSUE CERTIFICATES OF INDEBTEDNESS
bers of the Committee staff and representatives of one or more munici-
pal employee unions of the City of New York in an unsuccessful effort
One of the principal reasons that this legislation could be of par-
to obtain agreement to exclude by amendment collective bargaining
ticular benefit to distressed municipalities is the power of the court,
agreements from those executory contracts which may be rejected.
upon the filing of the petition, to permit the petitioning municipality
The language included in the Committee report with reference to
to issue certificates of indebtedness upon such terms and conditions
the mandatory renegotiation of collective bargaining agreements was
and with such priority as the court finds equitable. This gives the
inserted after this effort failed. We emphasize again, however, that no
court great leverage to encourage the petitioner to comply with condi-
discussion took place in the Committee or Subcommittee with ref-
tions such as rejecting contracts, raising taxes, or cutting expenses,
erence to this point. The language in the report, at the request of the
that the court may feel are necessary and equitable.
union representatives, is most inappropriate, unnecessary, and inac-
This power is new to municipal bankruptcy. It was not included in
curate.
prior legislation and was not included in legislation revising the entire
The legislation before us is authorized by article I, § 8, cl. 4 of the
Bankruptcy Act recommended by the Commission on the Bankruptcy
Constitution empowering the Congress of the United States to estab-
Laws of the United States or by the National Conference of Bank-
lish a uniform system of bankruptcy. The bankruptcy law of the
ruptcy Judges.
United States is a law made pursuant to the Constitution of the
The untested nature of this innovation suggests to the undersigned
United States which is expressly stated in article VI thereof to be the
the wisdom of limiting the applicability of this legislation to the im-
supreme law of the land.
mediate problem before the Congress-the distressed condition of our
It may appear that Sections 82 (c) and 83 of the proposed legislation
largest city. This is discussed more fully in paragraph V below.
indicate that State laws are intended to limit the specific power of the
court to permit the rejection of executory contracts under Section 82
III
(b) (1). This is not the case.
Section 82 (c) provides as follows:
RE A BALANCED BUDGET
Unless the petitioner consents or the plan SO provides, the
The purpose of municipal bankruptcy is to give the municipality an
court shall not, by any order or decree, in the case or other-
opportunity to get its house in order and make whatever adjustments
wise, interfere with-
or arrangements are indicated with existing indebtedness SO that it
(1) any of the political or governmental powers of the
may emerge from the bankruptcy under circumstances in which it can
petitioner;
survive. No municipality can survive unless its projected revenues,
(2) any of the property or revenues of the petitioner;
regardless of source, and projected expenditures, regardless of pur-
or
poses, are in balance. We do not think that Congress intends to make
(3) any income-producing property. (Emphasis
available the extreme remedies of a stay of all adverse proceedings
added.)
and involuntary compositions of the debts of objecting creditors and
It is apparent from the underlined portion of the above that the
of other benefits of Chapter IX in the absence of a clear municipal
limitation in Section 82 (c) is contingent specifically upon the peti-
intent to balance its budget.
tioner's consent. Therefore, when the petitioning municipality con-
We are concerned that the proposed revision of Chapter IX does
sents to an interference with its governmental powers by requesting
not make this absolutely clear. Section 94 (b) (1) requires that a plan
the court to permit it to reject an executory contract, the limitation in
cannot be confirmed unless it is fair and equitable and feasible. We
Section 82 (c) is inapplicable.
are encouraged by Chapter IX case law that has interpreted the fair
Section 83 provides as follows:
and equitable requirement which is currently in Chapter XI to include
Nothing contained in this chapter shall be construed to
findings that a petitioner will be able. to meet obligations proposed
limit or impair the power of any State to control, by legisla-
under the plan. Kelley V. Exerglades Drainage District, 319 U.S. 415
tion or otherwise, any municipality or any subdivision of or
(1943). The attention given by the Court to past and projected tax
in such State in the exercise of its political or governmental
revenues and operating expenses is reassuring.
powers, including expenditures therefor.
We are also encouraged by the additional requirement of "feasi-
bility" which is new in the context of municpal bankruptcy but which
The identical language appears in § 83(i) of Chapter IX of the
has a well defined meaning in Chapters X and XI dealing with cor-
present Bankruptcy Act. It was inserted in 1937 to overcome an earlier
porate reorganizations and arrangements.
determination that the legislation was unconstitutional. It is being
The reservations which we have about the absence of an express
retained because of the Committee's reluctance to remove tested lan-
statutory requirement that the budget be balanced within a reason-
guage from existing law and has no relevance to the power of the
able time has been amplified by the expression of Professor Vern
60
61
Countryman in a supplement to his testimony before the Senate com-
A memorandum prepared by the attorneys for the City of New
mittee considering municipal bankruptcy legislation wherein he stated
York expressly states that this legislation may be challenged in the
that, Jeasibility, and not budget-balancing, is all that is required
following language:
by § 221 (2) of Chapter X for corporate reorganizations."
The apparent distinction this noted authority makes between "feasi-
There are State constitutional limitations on the amount
bility" and "budget-balancing" is disturbing.
and type of permitted debt. Under the 10th amendment,
We recognize the argument that the terms fair, equitable, and feasi-
contentions may be made that a federal statute cannot pre-
ble when interpreted in light of the case law mean a balance budget,
empt these limitations, and, accordingly, that both the plan
but we cannot understand the reluctance to make perfectly clear the
of composition as well as any interim financing have to
congressional intent to require that a plan for adjustment of munici-
comply with these limitations. This may be a source of
pal indebtedness which is to receive the blessing of a federal court must
litigation.
include a requirement that the budget of the rescued municipality
This is consistent with what was pointed out in paragraph II that
must be in balance within a reasonable period of time after confirma-
the control the bankruptcy court retains over the power of the munic-
tion of the plan.
ipality to issue certificates of indebtedness could be the basis for
Such an amendment was rejected in Committee and Subcommittee.
constitutional challenge.
It may again be offered on the Floor.
The constitutionality of existing Chapter IX has been established.
It is a workable piece of legislation for smaller municipalities. It is
IV
only when we get to the larger and more complex financial structure
of cities such as the size of New York that its shortcomings become
RE DISMISSAL
apparent.
It is well to point out that section 108 of title I of the United
Section 98 of the bill was added during the course of subcommittee
States Code provides that if the new Chapter IX is repealed that it
discussion on order to make clear the power of the court to dismiss the
does not revive the previous legislation. The repeal is effective then
petition under the circumstances therein set forth. This was not in-
regardless of what subsequent constitutional development occurs.
tended to be an exclusive list of the bases for dismissal.
Accordingly, if the proposed Chapter IX is enacted and found to
It was clearly established that the petitioner itself may withdraw
be unconstitutional, the replaced Chapter IX would in all probability
its petition at any time for any reason whether the court permits it
not be revived and the municipalities of the country would be left
or not.
without any available remedy in the bankruptcy court.
An appropriate concern was expressed in Committee and Subcom-
Of greater significance however is the effect of a constitutional
mittee to avoid abuse of the broad privileges granted by this legisla-
challenge during the period of its litigation. We may very well be
survive. tion and to make certain that a frivilous petition could not long
facing a time in which there will be more financial distress of munici-
palities or other governmental entities than ever before. It would
Section 83(a) of present Chapter IX requires a determination at
be ironical indeed if our efforts to provide relief for them should
the time of filing that the petition was filed in good faith, and the
place even the present remedies out of reach because of litigation in
judge to approve the petition as properly filed in compliance with
which the powers bestowed by this Chapter are in question. It is un-
Chapter IX. The removal of these jurisdictional and procedural ap-
reasonable to think that certificates of indebtedness issued under pro-
proval requirements was not intended to imply that petitions may be
posed Chapter IX would be marketable as long as their validity was
filed in the absence of good faith. On the contrary, the objection pro-
subject to pending litigation challenging the constitutionality of the
cedure in Section 85 (a) and the dismissal provision in Section 98
new Chapter IX.
were intended to preclude the filing of frivilous petitions.
In view of the almost certain constitutional challenge of the pro-
No one seriously questioned during subcommittee or committee dis-
visions of proposed Chapter IX and the importance of maintaining
cussions the power of the court to dismiss on its own motion a petition
existing remedies, and in further view of the fact that the legislation
not being prosecuted with the appropriate diligence.
which we have before us was created and tailored for the one purpose
of protecting the City of New York, it is most appropriate to limit
V
the exposure to constitutional challenge and to limit the adverse effects
of a successful challenge.
RE SUBSTITUTE
Accordingly, it is our present intention to offer an amendment in
the nature of a substitute which would incorporate all the changes in
An abundance of innovative provisions are included as proposed
the proposed legislation with one addition instead of revising existing
changes in this municipal bankruptcy legislation. We can reasonably
Chapter IX, the legislation would create an additional Chapter XVI
anticipate that serious questions will be raised as to its
with remedies limited in scope to cities with a population exceeding one
constitutionality.
million people.
The membership is assured that all of the undersigned are satisfied
In addition to limiting exposure to challenge, there are at least two
that what we are undertaking to do is constitutionally permissible and
other reasons why it is appropriate that this be done:
appropriate, but we are influenced and we are concerned that what
1. The legislation which we are undertaking to enact at this moment
we are doing is untested and subject to constitutional challenge.
makes it quite easy for a municipality to abrogate either temporarily
62
or permanently, in one way or another, its contractual obligations; and
every municipality that has the potential of receiving the benefits of
this Act also has the comparable benefits of an easy way to get out from
under its indebtedness. Under these circumstances, securities are going
to be less marketable and interest costs greater.
There is no real reason why well managed municipalities should pay
the high costs that will result from changes designed to benefit New
York City. Chapter IX has worked well for municipalities with a
manageable number of creditors and it should continue to do SO.
2. Limiting the availability of this relief to cities with populations
of at least one million persons will allow the constitutionality of this
bill to rest on the commerce power as well as upon the bankruptcy
power.
Cities with populations of at least one million persons clearly impact
the commerce of the country. Such is not the case with many small
sewer or drainage districts eligible for relief under Chapter IX.
The legitimate impact on commerce caused by the bankruptcy of a
major municipality justifies use of the commerce power to infringe
State sovereignty by allowing the rejection of executory contracts and
the issuance of certificates of indebtedness. While it may be argued that
these powers may impair State sovereignty beyond the scope of the
bankruptcy power, they are clearly constitutional under the commerce
power.
VI
RE PREFERENCES
A matter of concern has been the problem of prepetition set-offs and
preferential transfers whereby a creditor is made better off than he
would be in bankruptcy. An amendment was accepted by the Com-
mittee protecting the petitioner against set-offs within four months
of bankruptcy. Subsequent reflection indicates that even this does not
go far enough.
There is no real reason why the power to set aside transfers prior
to bankruptcy under appropriate circumstances should not be the same
in municipal bankruptcy as it is in other bankruptcies. We note with
interest that the Senate Judiciary Committee has SO concluded.
Accordingly, we intend to offer an amendment to incorporate into
the legislation before us the avoiding powers of Sections 60 (a), (b),
(c), 67, 70 (c) and (e) of the Bankruptcy Act. These avoiding powers
are presently available in straight bankruptcy and under Chapters X,
XI, XII, and XIII of the Bankruptcy Act.
The undersigned Members ascribe to the above stated views.
M. CALDWELL BUTLER.
THOMAS N. KINDNESS.
EDWARD HUTCHINSON.
ROBERT McCLORY.
CARLOS J. MOORHEAD.
HENRY J. HYDE.
The undersigned Member concurs in all but paragraph III of the
above stated views.
CHARLES E. WIGGINS.
O
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-686
CHAPTER IX BANKRUPTCY REVISION
DECEMBER 1, 1975.-Ordered to be printed
Mr. EDWARDS of California. from the Committee on the Judiciary,
submitted the following
REPORT
together with
SEPARATE AND SUPPLEMENTAL VIEWS
[To accompany H.R. 10624]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 10624) to revise chapter IX of the Bankruptcy Act, having con-
sidered the same, report favorably thereon with amendments and
recommend that the bill as amended do pass.
The amendments are as follows:
Page 4, immediately after line 12, insert the following new
subsection:
(d) DESIGNATION OF JUDGE.-Upon the filing of a petition
the chief judge of the court in the district in which the peti-
tion is filed shall immediately notify the chief judge of the cir-
cuit court of appeals of the circuit in which the district court
is located, who shall designate the judge of the district court
to conduct the proceedings under this chapter.
Page 4, line 19, strike out the colon and all that follows down through
but not including the period in line 25.
Page 5, line 16, strike out "mailing" and insert "publication" in lieu
thereof.
Page 7, line 10, insert "as soon as practicable after the filing of the
petition" after "published" and before the comma.
Page 8, line 17, strike out "of" and insert "to" in lieu thereof.
subsection: Page 9, immediately after line 3, insert the following new
(g) RECOVERY OF SET-OFF.-Any set-off which relates to a,
contract, debt, or obligation of the petitioner and which set-
off was effected within four months prior to the filing of the
petition, is voidable and recoverable by the petitioner after
57-006
Rec. 12/9/75
THE WHITE HOUSE
5:50 pm
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date:
December 9, 1975
Time:
FOR ACTION:
CC (for information):
Jim Cannon (Jim Falk)
Max Friedersdorf
Bob Hartmann
Paul Theis
FORD is LIBRARY GERALD
Jack Marsh
FROM THE STAFF SECRETARY
DUE: Date:
Wednesday, December 10
Time:
10 A.M. Please
SUBJECT:
Proposed Letter to Governor Hugh L. Carey
of New York (prepared by Bill Seidman)
ACTION REQUESTED:
For Necessary Action
X For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
bn whom ?
It has been requested that this letter be sent tomorrow
while the news on New York is still in the papers.
2, I don't see how any great good Comes
/. See Thank you. notes on draft.
of courtesy achnowledged, Coo I Carey's would onit which has the
from this but of as a matter letter
to PLEASE be ATTACH THIS COPY whole TO MATERIAL second SUBMITTED. paragraphis just NY's
nose in it X
If you have any questions or if you anticipate a
delay in submitting the required material, please
James E. Connor
telephone the Staff Secretary immediately.
For the President
RTA
THE WHITE HOUSE
WASHINGTON
Dear Hugh:
advising we
Thank you for your letter of November 26, It is my judgment
that, under your leadership, New York officials, union and
financial leaders have now initiated a plan which, if effectively
implemented, can return the City to a position of financial
solvency. I ampleased that the Congress, in response to my
request, is moving swiftly to provide a temporary line of
credit to the State of New York to enable us to supply seasonal
financing to New York City.
royal
Much effort has been expended on this problem, and I was glad
pleased to work with you and others in developing a realistic
approach consistent with the national interest. Although the
steps taken in recent days in Albany and Washington will pro-
vide resources needed to alleviate the City's financial dis-
tress, responsibility to complete the unfinished task of
putting the City's financial affairs in order must continue to
rest in New York.
My compliments to you, Felix Rohatyn and others on your
accomplishments in moving toward a solution of this difficult
matter.
Sincerely,
The Honorable Hugh L. Carey
Governor of New York
Albany, New York 12224
FORD is LIBRARY GERALD
NYC
THE WHITE HOUSE
WASHINGTON
December 12, 1975
MEMORANDUM FOR JAMES E. CONNOR
FROM:
L. WILLIAM SEIDMAN
SUBJECT:
Proposed Letter to Governor Hugh Carey
of New York
The attached proposed letter to Governor Hugh Carey has been
revised in accordance with the comments received from Bob
Hartmann and Jim Cavanaugh and has been reviewed and
approved by Max Friedersdorf.
Attachment
GENRED LIBRARY
THE WHITE HOUSE
WASHINGTON
Dear Hugh:
Thank you for your letter of November 26 advising
me that, under your leadership, New York officials,
union and financial leaders have now initiated a plan
which, if effectively implemented, can return the
City to a position of financial solvency. I am glad
that the Congress, in response to my request, has
moved swiftly to assure a temporary line of credit
to the State of New York to provide seasonal financ-
ing to New York City.
My compliments to you, Felix Rohatyn and others on
your accomplishments in moving toward a solution of
this difficult matter.
Sincerely,
The Honorable Hugh L. Carey
Governor of New York
Albany, New York 12224
GREATO FORD FIBRARY
THE WHITE HOUSE
WASHINGTON
December 10, 1975
MEMORANDUM FOR:
L. WILLIAM SEIDMAN
FROM:
JAMES E. CONNOR JEC
SUBJECT:
Proposed Letter to Governor Hugh Carey
of New York
Staffing of your proposed letter to Governor Hugh Carey resulted
in the following comments:
Approved by Jim Cannon and Paul Theis.
Max Friedersdorf -- The Office of Legislative Affairs recommends
that proposed letter not be sent until checked with Barber
Conable, Jack Wydler, Bill Stanton, John Tower et al.
Jim Cavanaugh -
See comments attached
Bob Hartmann -
See comments attached
This letter is returned to you with the request that it be reviewed
in the light of the comments received in staffing.
LIBRARY
NYC
EPB
CREDIT AGREEMENT
by and among
UNITED STATES OF AMERICA
and
STATE OF NEW YORK,
THE CITY OF NEW YORK, and
NEW YORK STATE EMERGENCY FINANCIAL CONTROL BOARD
including undertakings by
MUNICIPAL ASSISTANCE CORPORATION FOR
THE CITY OF NEW YORK
Dated as of December 30, 1975
CREDIT AGREEMENT
This CREDIT AGREEMENT is made and entered into as of the 30th day of December, 1975, by and
among the United States of America, acting by and through the Secretary of the Treasury (the
"Secretary") on the one hand; and the State of New York (the "State"), The City of New York (the
"City") and the New York State Emergency Financial Control Board (the "Board") on the other hand
(the State, the City, and the Board being sometimes collectively called the "parties").
RECITALS
1. The New York City Seasonal Financing Act of 1975, Public Law 94-143, authorizes until June 30,
1978, the Secretary upon request of the City or a Financing Agent to make loans to the City or a Financing
Agent, with specified maturity dates and interest rates provided that he determines that there is a
reasonable prospect that such loans will be repaid in accordance with their terms and conditions, and the
Secretary may require the City and any Financing Agent and, where he deems necessary, the State to
provide such security as he deems appropriate.
2. Public Law 94-143 authorizes $2,300,000,000 for the making of loans by the Secretary to the City
or a Financing Agent and for that purpose $2,300,000,000 has been appropriated by the Congress.
3. Pursuant to the New York State Municipal Assistance Act, as amended, the Municipal Assistance
Corporation For The City of New York (the "Corporation") is empowered to provide financial assistance
to the City to the extent and in the manner provided in such Act.
4. The Legislature of the State has adopted and the Governor of the State has signed legislation
entitled the New York State Financial Emergency Act for The City of New York (the "State Financial
Emergency Act") pursuant to which the Board has been created.
5. Pursuant to the State Financial Emergency Act, the City has developed and the Board has adopted
a financial plan for the City for the fiscal years ending June 30, 1976, 1977 and 1978 which, among other
things, projects amounts and sources of revenues and projects expenditures of the City during such period.
6. The State Financial Emergency Act empowers the Board to approve aggregate expenditures and
borrowings by the City.
7. The Secretary and the parties desire to restore investor receptivity to the obligations of the City
prior to June 30, 1978.
In consideration of the loans to be made by the United States to or for the benefit of the City as set
forth in the foregoing recitals, and the mutual covenants and agreements herein contained, the Secretary
and the parties agree as follows:
ARTICLE 1. DEFINITIONS
Section 1.1 Definitions. The following terms shall have the following meanings:
"Account": any account established with a bank, approved by the Secretary and having its principal
office in the City, by any of the parties to this Agreement for the benefit of the Secretary with
irrevocable instructions that no payments may be made from such account except to or with the
consent of the Secretary as set forth in Section 6.3.
"Act": Public Law 94-143, the New York City Seasonal Financing Act of 1975, as from time to time
amended.
"Agreement": this Credit Agreement.
"Banking Days": days on which the Federal Reserve Bank of New York is open for business.
"Borrower": the City or a Financing Agent; as of the date of this Agreement no Financing Agent has
Banking Days prior to the Closing Date, the proceeds of which shall be applied as provided in Section 2.7,
the authority to be a Borrower.
against delivery to the Secretary of a Note of the Borrower in the aggregate principal amount of the loan;
"Borrowing Laws of the State": the Constitution and laws of the State authorizing and providing for
provided, however, that the aggregate principal amount of all Notes outstanding at any one time prior to
the issuance and sale of notes and bonds of a Borrower, including, without limitation, Article VIII of
June 30, 1976 shall not exceed $1,300,000,000.
the Constitution of the State and the provisions of the Local Finance Law.
Upon the execution and delivery of this Agreement, a Note shall be issued to the United States in
"City Financial Plan": the three-year financial plan for the City as approved by the Board on October
exchange for the $130,000,000 note issued to the United States on December 18, 1975 (the "temporary
20, 1975 as amended and in effect on the date of this Agreement, including a revised plan for
note"). Such Note so issued in exchange shall be in the same aggregate principal amount and shall
providing the required moneys when approved by the Board, as it may from time to time hereafter be
evidence the same loan as the temporary note, shall be dated the date of the temporary note, shall bear
amended, including material revisions presently contemplated; any such approval, amendment or
interest from December 18, 1975 at the rate stated in the temporary note, and shall be payable on demand
revision hereafter to be made upon notice to the Secretary in accordance with Section 6.2.
for payment by the Secretary or on the 20th day of April, 1976, whichever date is earlier. The Note and
the loan evidenced thereby shall constitute a Note issued and a loan made in accordance with this
"Financing Agent": any agency duly authorized by State law to act on behalf or in the interest of the
Agreement and shall be subject to and entitled to all the benefits of all the terms and conditions hereof.
City with respect to the City's financial affairs.
Section 2.2 The Subsequent Credit. After June 30, 1976 and prior to June 30, 1978, subject to all of
"Fiscal Year": as applied to the City, the period from July 1 in any calendar year until June 30 of the
the terms and conditions of this Agreement and so long as there shall exist no default hereunder or under
next following calendar year.
any Note, the Secretary will from time to time lend to a Borrower on a Banking Day designated by such
"Initial Credit": the credit described in Section 2.1.
Borrower (each of which days shall be a "Closing Date") such amount (in integral multiples of
"Note": any note of a Borrower issued in accordance with this Agreement.
$10,000,000) as the Borrower may request, and as the Secretary may approve, by a Loan Request made
by the City to the Secretary at least five Banking Days prior to the Closing Date, the proceeds of which
"Subsequent Credit": the credit described in Section 2.2.
shall be applied as provided in Section 2.7, against delivery to the Secretary of a Note of the Borrower in
Section 1.2 Other Definitions. The terms set forth below are defined elsewhere in this Agreement, as
the aggregate principal amount of the loan; provided, however, that the aggregate principal amount of all
indicated, and shall have the respective meanings so defined:
Notes outstanding at any one time during such period shall not exceed $2,300,000,000.
Term
Definition
Section 2.3 Notes; Closings. Each Note issued by the City (i) shall be a general obligation of the City
"Board"
Preamble
for the payment of principal and interest on which the faith and credit of the City is pledged, (ii) shall be
"Borrowing and Payment Schedule"
issued pursuant to the Borrowing Laws of the State, (iii) shall be executed by the duly authorized officers
3.1
"City"
of the City, (iv) shall describe on its face the revenues in anticipation of which it is issued, and (v) shall be
Preamble
in substantially the form prescribed in the Local Finance Law and set forth in Exhibit 2.3.
"Closing Date"
2.1, 2.2
"Corporation"
Recital 3
Each Note issued by any Borrower shall be dated the Closing Date (except for the Note issued in
"event of default"
7.1
exchange for the temporary note), shall bear interest at a rate computed in accordance with Section 2.4,
"Loan Request"
2.8
and shall be payable on demand for payment by the Secretary and, in the absence of demand, on such
"Official Statement"
5.2
date as the Secretary, the City and the Borrower may agree (the "Stated Maturity Date"), but not later
"parties"
Preamble
than the last day of the Fiscal Year in which it is issued.
"Secretary"
Preamble
Each Note issued by any Borrower other than the City shall be in conformity with the Act, shall be
"State"
Preamble
issued under the applicable law of the State in effect at the time of issuance thereof and shall contain such
"State Financial Emergency Act"
Recital 4
other provisions as may be agreed upon by the Secretary, the City and such Borrower.
"Stated Maturity Date"
2.3
All payments of principal and interest on the Notes shall be made in federal funds by wire transfer at
"temporary note"
2.1
the Federal Reserve Bank of New York, for credit to the account of the United States Treasury, crediting
Section 1.3 Interpretation. As used in this Agreement the singular shall include the plural and the
accounting station 20-18-0006, Washington, D.C. 20226. If a principal or interest payment falls due on a
plural shall include the singular unless the context otherwise requires. The masculine gender shall include
date that is not a Banking Day, then interest shall be computed to and principal and interest shall be paid
the feminine.
on the next succeeding Banking Day. The closing of each loan hereunder shall take place at the office of
the Secretary in Washington, D.C. at 11:00 o'clock in the forenoon on the Closing Date, or at such other
Section 1.4 References and Headings. References in this Agreement to Articles, Exhibits or Sections
time and place as the Borrower and the Secretary may agree. Each loan shall be made by crediting federal
are to Articles, Exhibits or Sections of this Agreement unless the context otherwise requires. The headings
funds to an account of the Borrower at a bank designated in the Loan Request and approved by the
of the Articles, Exhibits and Sections are inserted for convenience of reference only and are not a part of
Secretary.
this Agreement.
Section 2.4 Interest. Interest on each Note shall be at an annual rate to be stated in the Note which is
ARTICLE 2. THE CREDIT
1% per annum greater than the current average market yield on outstanding marketable obligations of the
United States with remaining periods to maturity comparable to the Stated Maturity Date of the Note, as
Section 2.1 The Initial Credit. Prior to June 30, 1976, subject to all of the terms and conditions of this
of the close of a Banking Day shortly prior to the Closing Date with respect thereto, as determined by the
Agreement and so long as there shall exist no default hereunder or under any Note, the Secretary will from
Secretary. Interest shall be computed on a 365-day year. Upon request by the Borrower, the Secretary will
time to time lend to a Borrower on a Banking Day designated by such Borrower (each of which days shall
furnish the basis upon which the interest rate was determined.
be a "Closing Date") such amount (in integral multiples of $10,000,000) as the Borrower may request,
and as the Secretary may approve, by a Loan Request made by the City to the Secretary at least five
Section 2.5 Payment. Payment of the entire unpaid principal amount of each Note and all accrued
interest thereon shall be made as provided in the Note.
2
3
Section 2.6 Voluntary Prepayments. The Borrower may, at any time and from time to time, prepay
(without penalty) all or any part of the unpaid principal amount of the Note (in integral multiples of
reasonable accuracy, based on available information, a schedule showing expected receipts and ex-
$10,000,000) together with interest on the principal amount so prepaid accrued to the date of prepayment
penditures of the City, by major categories, for the balance of the present Fiscal Year and for the next
and theretofore unpaid, and from and after such prepayment interest thereon shall cease to accrue. Any
Fiscal Year including (i) the amount and dates of anticipated borrowings, including borrowings to be
voluntary prepayment under this Agreement shall be applied first to the Note of the Borrower making such
made hereunder, (ii) the sources of the revenues in anticipation of which each borrowing is to be made
prepayment which has the earliest Stated Maturity Date.
showing any anticipated or foreseeable reductions, (iii) the amount and dates of anticipated receipts of
such revenues together with the basis for determining same, and (iv) comparable information for such
Section 2.7 Use of Proceeds. The City agrees that the proceeds of each loan hereunder, whether
revenues for each of the three preceding Fiscal Years. There shall be furnished with each Loan Request a
made to the City or to a Borrower other than the City, shall be used by the City as seasonal financing for
Borrowing and Payment Schedule for the then current Fiscal Year and the succeeding Fiscal Year revised
the maintenance of essential governmental services of the City.
to take into account any changes from the prior such Schedule.
Section 2.8 Loan Request. Each request for a loan hereunder (the "Loan Request") shall be signed
Section 3.2 Secretary's Determination. The Secretary shall have determined that there is a reasonable
by the City, and approved by the Board, and each request by the City for a loan to any Borrower other
prospect of repayment of the loan in accordance with its terms and conditions, such determination to be
than the City shall also be signed by such Borrower, and shall be in such form as the Secretary may from
evidenced by the making of such loan.
time to time require. Each Loan Request shall include (i) a statement of the amount of the requested loan,
Section 3.3 Payment of Notes When Due. All Notes under this Agreement which shall have matured
(ii) the Closing Date, (iii) the requested Stated Maturity Date for the loan, (iv) a representation that the
shall have been repaid according to their terms.
amount of the loan is needed as a seasonal borrowing in order that the City may maintain essential
Section 3.4 Certificates. The representations and warranties contained in this Agreement shall be true
governmental services, (v) an identification of the revenues in anticipation of which the loan is to be made
and correct on and as of the date of the making of each such loan with the same force as though made on
showing any prior charges against, other debt issued in anticipation of and any other existing encumbrance
on such revenues, and any anticipated or foreseeable reductions thereof, including such financial
and as of such date, except for changes which the Secretary determines are not materially adverse to the
information as the Secretary may reasonably request, and (vi) to the extent required by Section 6.11, a
ability of the City or any Borrower to repay the loans hereunder, and no default shall have occurred under
description of efforts to obtain other sources of seasonal financing.
this Agreement or any Note by any of the parties or by any Borrower; and the Secretary shall have
received on such date a certificate or certificates to the foregoing effects from such parties and any
Section 2.9 Source of Revenue. The identification in a Loan Request of the revenues in anticipation
Borrower as the Secretary may designate.
of which any Note is issued or to be issued, shall constitute, to the extent permitted by law, representations
Section 3.5 Proper Proceedings. All proper proceedings shall have been taken to authorize this
and warranties by the City and any Borrower other than the City that the items so identified have not been
Agreement, the loan, the Note and the other transactions contemplated hereby.
and will not be assigned, pledged or subjected to any prior lien or identified as a source of repayment of
other borrowings, except under this Agreement, and will be applied only in accordance with the provisions
Section 3.6 Required Consents and Approvals. All necessary consents, approvals and authorizations
of Section 6.3 except, in each case, as stated in such identification.
of any governmental or administrative officer or agency to or of any of the transactions contemplated
hereby shall have been obtained and shall be in full force and effect.
Section 2.10 Consequences of Board Approval. Approval of a Loan Request by the Board shall
Section 3.7 Officers' Certificate. If requested by the Secretary, there shall have been furnished to the
constitute representations and warranties by the Board (i) that the Loan Request and the loan are
Secretary a certificate of such parties and any Borrower as the Secretary may designate, in such form and
consistent with the City Financial Plan, and (ii) to the same effect as set forth in Section 2.9.
containing such representations and assurances as the Secretary may deem relevant, including in the case
Section 2.11 Federal Payments. The Secretary, to the extent permitted by federal law, may pay into
of the State, certification of the status of any and all appropriations for and payments to or for the benefit
an Account any payment from the United States or any department or agency thereof which has been
of the City, any Borrower and the Board.
identified pursuant to Section 2.9 as direct or indirect revenues in anticipation of which any Note has been
Section 3.8 General. All instruments and legal proceedings in connection with the authorization and
or is to be issued in accordance with this Agreement. The Secretary, to the extent permitted by federal law,
implementation of the transactions contemplated by this Agreement shall be satisfactory in form and
may also pay into an Account, to the extent necessary to pay any Note that is in default, any payment from
substance to the Secretary, and the Secretary shall have received copies of all documents, including records
the United States or any department or agency thereof to or for the benefit of the City or any Borrower,
of proceedings and opinions of counsel, satisfactory to the Secretary, which the Secretary may have
whether or not such payment has been identified as revenues in anticipation of which any Note has been
requested in connection therewith, such documents where appropriate to be certified by proper
issued.
governmental or administrative authorities.
Section 2.12 Notice of Demand for Payment. Notwithstanding the terms of any Note, the Secretary
Section 3.9 Validity of Notes. Each Note shall have been validly authorized, executed, issued and
will give at least ten Banking Days' notice to the Borrower before making demand for payment of any
delivered and shall conform to the requirements of Section 6.1.
demand Note, except as stated in Article 7.
ARTICLE 4. REPAYMENT OF LOANS
ARTICLE 3. CONDITIONS TO MAKING LOANS
The United States shall, for the purposes of assuring repayment of the Notes, have a claim, to the
extent permitted by law, on such revenues of the City as may be necessary to repay the Notes according to
The making of any loan pursuant to Article 2 shall be subject to compliance by the parties and any
their terms, including, without limitation, the revenues in anticipation of which any Note has been issued.
Borrower with their agreements contained herein and in any Note, and to the satisfaction of the following
Section 4.1 Obligations of the Mayor. The Mayor hereby covenants and agrees that, to the extent
further conditions:
permitted by law, he will fully comply with all terms and conditions of any Loan Request or Note,
including, without limitation, the taking of any and all actions necessary to insure that the revenues
Section 3.1 Borrowing and Payment Schedule. There has heretofore been furnished to the Secretary a
identified in the Loan Request as revenues in anticipation of which a Note has been issued are used only as
Borrowing and Payment Schedule prepared by the City and approved by the Board setting forth with
provided in Section 6.3. In the event the Mayor believes or has reason to believe that such revenues will
4
not be available or sufficient to repay any such Note according to its terms, the Mayor shall promptly
5
notify the Secretary, setting forth the reasons he believes such revenues will be unavailable or insufficient,
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
identifying alternative sources of repayment he reasonably believes to be adequate to pay the Note in full
according to its terms and reciting his agreement to carry out the provisions of the first sentence of this
Each party and each Borrower severally represents and warrants with respect to itself that:
Section 4.1 with respect to such alternative sources of repayment as if such alternative sources were
Section 5.1 Authority. It has all necessary power and has taken all action, including consenting to
originally identified as revenues in anticipation of which the Note had been issued, or if he does not believe
action taken by others, required to make valid each provision of this Agreement applicable to it. This
that there are any alternative sources of repayment, then so stating. The Mayor shall take or cause to be
Agreement has been duly executed by a duly authorized officer and is its legal, valid and binding
taken, to the extent permitted by law, any action necessary to permit or facilitate any action required to be
obligation.
performed by any party under this Article 4.
Section 5.2 Litigation. Except as disclosed in an Official Statement of the Corporation dated
Section 4.2 Obligations of the City Comptroller. The City Comptroller hereby covenants and agrees
November 26, 1975, as supplemented December 16, 1975 and used in this Agreement solely for purposes
that, to the extent permitted by law, he will fully comply with all terms and conditions of any Loan
of describing certain matters referred to therein and for no other purpose (the "Official Statement") or in a
Request or Note, including, without limitation, the taking of any and all actions necessary to insure that the
document delivered to the Secretary and identified by reference to this Section, there is no litigation and no
revenues identified in the Loan Request as revenues in anticipation of which a Note has been issued are
legal or administrative proceeding pending or threatened against it, or any of its officers, or by which it
used only as provided in Section 6.3. In the event the City Comptroller believes or has reason to believe
would be bound, which questions the validity of or compliance by it with the terms of this Agreement or of
that such revenues will not be available or sufficient to repay any such Note according to its terms, the City
any action taken or to be taken pursuant hereto or in connection herewith, including, without limitation,
Comptroller shall promptly notify the Secretary, setting forth the reasons he believes such revenues will be
the payment of any Note issued pursuant hereto.
unavailable or insufficient, identifying alternative sources of repayment he reasonably believes to be
adequate to pay the Note in full according to its terms and reciting his agreement to carry out the
Section 5.3 No Legal Obstacle to Agreement. Except as disclosed in the Official Statement or in a
provisions of the first sentence of this Section 4.2 with respect to such alternative sources of repayment as if
document delivered to the Secretary and identified by reference to this Section, neither the execution and
such alternative sources were originally identified as revenues in anticipation of which the Note had been
delivery of this Agreement nor the consummation of any transaction herein referred to or contemplated
issued, or if he does not believe that there are any such alternative sources of repayment, then so stating.
hereby nor the fulfillment of the terms hereof or of any agreement or instrument referred to in this
The City Comptroller shall take or cause to be taken, to the extent permitted by law, any action necessary
Agreement has constituted or resulted in or will constitute or result in a breach of the provisions of any
to permit or facilitate any action required to be performed by any party under this Article 4.
agreement to which it is a party or by which it is bound, or the violation of any judgment, decree or
governmental order, rule or regulation applicable to it, or will result in the creation under any agreement
Section 4.3 Obligations of the Board. The Board hereby covenants and agrees that, to the extent
or instrument of any security interest, lien, charge or encumbrance upon any of the assets or properties of,
permitted by law, it will fully comply with all terms and conditions of any Loan Request or Note,
or held for the benefit of, it.
including, without limitation, the authorization of the establishment and maintenance of an Account for
the purposes set forth in Section 6.3 and elsewhere herein, and the taking of any and all actions necessary
Section 5.4 Official Statement. The Official Statement contains under the subheading "Proposed
to insure that the revenues identified in the Loan Request as revenues in anticipation of which a Note has
Sources of Required Moneys" under the heading "Three-Year Financial Plan" a fair description of the
been issued are used only as provided in Section 6.3. In the event the Board believes or has reason to
material purported to be set forth therein, comprising a portion (which has not been approved by the
believe that such revenues will not be available or sufficient to repay any such Note according to its terms,
Board) of the City Financial Plan as defined in Section 1.1 prior to contemplated revision.
the Board shall promptly notify the Secretary, setting forth the reasons it believes such revenues will be
unavailable or insufficient, identifying alternative sources of repayment it reasonably believes to be
ARTICLE 6. COVENANTS
adequate to pay the Note in full according to its terms and reciting its agreement to carry out the provisions
Section 6.1 General Obligations. The City covenants and agrees that each Note issued by the City
of the first sentence of this Section 4.3 with respect to such alternative sources of repayment as if such
hereunder will be the general obligation of the City, and the faith and credit of the City will upon the
alternative sources were originally identified as revenues in anticipation of which the Note had been
issued, or if it does not believe that there are any such alternative sources of repayment, then so stating.
issuance of each such Note be pledged to the repayment of the principal of and interest on each Note.
Each Borrower other than the City covenants and agrees that each Note issued by such Borrower
The Board shall take or cause to be taken, to the extent permitted by law, any action necessary to permit or
facilitate any action required to be performed by any party under this Article 4.
hereunder will be the general obligation of such Borrower and shall be additionally secured in such
manner as required by the Act and as shall be satisfactory to the Secretary.
Section 4.4 Obligations of the State. If, at any time, the Secretary has reason to believe that any Note
will not be repaid according to its terms, the Secretary may notify the Governor and the State Comptroller
Section 6.2 City Financial Plan. The City and the Board each covenants and agrees that until all
in writing of such belief. Upon receipt of such notice, the Governor and the State Comptroller shall take or
Notes shall have been paid in full and until June 30, 1978, it will not modify, amend or change the City
cause to be taken any and all actions, to the extent permitted by law, to prevent the disbursement by the
Financial Plan except upon written notice to the Secretary, in advance when feasible and in any event
State to the City of any revenues identified in the Loan Request as revenues in anticipation of which such
promptly thereafter, will observe the terms and conditions of the City Financial Plan as from time to time
Note had been issued except as provided in this Section. In the event such notice is received prior to the
so modified, amended or changed, and will use its best efforts to see that the City Financial Plan is carried
Stated Maturity Date of such Note, any such revenues shall be placed, to the extent permitted by law, in an
out and that the assumptions contained in the City Financial Plan will be fulfilled.
Account until the amount of revenues in such Account equals all amounts due on the Stated Maturity Date
Section 6.3 Payments. Each of the City, any Borrower and the Board hereby agrees to furnish to the
of such Note. If such notice is received on or after the Stated Maturity Date, the Governor and the State
governmental or administrative agency or official responsible for paying to or for the benefit of the City the
Comptroller shall cause such revenues to be paid, to the extent permitted by law, directly to the Secretary
revenues identified in the Loan Request as revenues in anticipation of which any Note has been issued an
until the amounts so paid to the Secretary equal all amounts due under the Note to which the notice
irrevocable instruction to pay all such revenues, to the extent such revenues were not theretofore subjected
relates. The State Comptroller hereby agrees to conduct or, at his election, to cause an independent
to any prior claim, directly to a specified Account and shall use its best efforts to secure and furnish to the
certified public accountant to conduct an audit of the books and records of the City as at June 30, 1978 and
Secretary the consent of each such payor to make payment in accordance with such instruction. All such
to furnish a copy of the auditor's report to the Secretary. The City, the Board and each Borrower hereby
revenues shall be paid into such Account, either by the payor pursuant to such an instruction or by the
authorizes and consents, to the extent permitted by law, to the carrying out of the provisions of this Section
recipient thereof immediately upon receipt. Subject to the right of the City to make voluntary prepayments
4.4.
pursuant to Section 2.6, the bank maintaining the Account shall be given irrevocable instructions to pay
6
7
sums in such Account to the Secretary as Notes become due for application to the payment of the Notes
6.6.4. Commencing July 31, 1976 and on each January 31 and July 31 thereafter a written
and such sums shall be so paid. So long as no demand has been made, no default under this Agreement or
statement on behalf of the City by the Mayor evaluating the then current overall economic condition
any Note has occurred and no Note has matured and is unpaid, the Secretary hereby consents (subject to
of the City, including, without limitation, the following:
the making of satisfactory arrangements for the establishment and maintenance of an Account implement-
(i) the condition of the real estate tax base describing changes in the tax base, abandonments,
ing the provisions of this Section 6.3) to the use of any sums in any Account in accordance with the City
delinquency rates in tax payments, and assessing the impact thereon of the laws and
Financial Plan. Upon demand or the occurrence of a default under this Agreement or any Note, such
regulations of the City and the State;
consent shall automatically and immediately terminate and upon notice by the Secretary to the bank all
funds in any Account to the extent of Notes then due shall be paid to the Secretary for application to the
(ii) the condition of the business tax base, including, to the extent known, identification of major
payment of such Notes. Each of the parties, each Borrower and the Secretary agrees to cooperate and use
business establishments which have ceased to do business within the City and the reasons
its and his best efforts to implement the intent and purpose of this Section 6.3. Amounts held in the
therefor;
Account from time to time may be invested in obligations of the United States or in certificates of deposits
(iii) obligations under the welfare, medicaid and similar assistance programs; and
secured by obligations of the United States, as the Secretary may approve, such approval not to be
unreasonably withheld.
(iv) any other significant event or development affecting the tax bases, other sources of revenue,
expenditures or obligations of the City.
Section 6.4 Restrictions on Liens and Borrowings. Each of the parties and any Borrower covenants
and agrees, to the extent permitted by law, that no lien or assignment or other financial covenant will be
Section 6.7 Accounting System and Independent Audit. The City, with the approval and encour-
made or allowed to continue which in any way restricts or subjects to any prior claim the use of revenues in
agement of the Board, has retained consultants to assist in designing a new system of financial and
anticipation of which any Note has been or is about to be issued, to the extent not theretofore otherwise
accounting practices, records and controls to be fully implemented in the City's Fiscal Year beginning July
restricted or subjected to any prior claim, all as set forth in the Loan Request, and that no borrowings will
1, 1977. The City and the Board hereby agree to pursue with diligence the design and implementation of
be made by or on behalf of the City, except those incorporated in the City Financial Plan as amended from
such new accounting system and further agree that by July 1, 1977 the City will have established an
time to time pursuant to Section 6.2.
accounting system which will establish adequate records and controls which would enable an auditor to
perform an annual audit and render an opinion thereon. The City hereby agrees that an audit may be
Section 6.5 Audits. Each of the parties and any Borrower hereby authorizes the General Accounting
made as at June 30, 1978 by the State Comptroller, or at his election by an independent certified public
Office and any representative of the Secretary to make such audits and review such financial and other
accountant, and that a copy of the auditor's report may be furnished to the Secretary.
information as may be deemed appropriate by either the Secretary or the General Accounting Office,
including all accounts, books, records and transactions of each such party and any agency or in-
The City agrees to establish an accounting system for the Fiscal Year beginning July I, 1977 that is in
strumentality of each such party, and consents that the results of any such audits and reviews may be
accordance with the accounting principles set forth in the State Comptroller's Uniform System of Accounts
reported to the Secretary and the Congress. Each of the parties, other than the State, and any Borrower
for Municipalities, as the same may be modified by the State Comptroller in consultation with the City
hereby authorizes the Secretary and any representative of the Secretary to inspect and copy all its accounts,
Comptroller. The system of accounting will be adapted as needed to the applicable rules or regulations
books, records, memoranda, correspondence, and other documents relating to its financial affairs.
hereafter adopted for registration or sale of municipal securities by the Securities and Exchange
Commission or any other federal agency whether pursuant to new legislation or otherwise.
Section 6.6 Reports. The City and the Board covenant and agree to furnish to the Secretary the
following:
Pending the full implementation of the new accounting system, the City and the Board each agrees to
6.6.1. As soon as available and in any event within thirty days after the end of each calendar
use its best efforts continuously to improve the reliability of the City's existing financial records and the
month, a monthly certificate signed by the City and approved by the Board certifying (i) that there
reports generated therefrom, including timely adoption of a system of internal controls over receipt and
has been no material change in the City Financial Plan, and (ii) that there have been no material
expenditure of City funds. In pursuing such interim system, the City and the Board agree to give careful
adverse developments in litigation pending and no new litigation challenging the Plan, this
consideration to the recommendations of the Secretary, the General Accounting Office and any consultant
retained by either.
Agreement or any transaction contemplated by this Agreement; or if there has been any such change,
material adverse development or new litigation, specifying the same and giving a reasonably precise
Section 6.8 Additional Information. Each of the parties and any Borrower hereby covenants and
description thereof.
agrees to furnish to the Secretary such other information and reports as the Secretary may from time to
6.6.2. As soon as available and in any event within forty-five days after the end of each of the
time reasonably request that are related to the finances or accounting matters of the City, to revenues in
calendar months of December, 1975 and January, February and March of 1976, and as soon as
anticipation of which Notes have been issued hereunder, or to the ability of the City and any other
available and in any event within thirty days after the end of each calendar month thereafter, and
Borrower to repay loans hereunder, and that the officers and representatives of each will be available to
within ninety days after the end of the final month of each Fiscal Year, a statement of the results of
discuss with the Secretary and his representatives their affairs, finances and accounts and advise them as to
the operations of the City for such month and for the expired portion of the Fiscal Year then ended,
the same. Within ten days after any such request by the Secretary, the party or Borrower of whom such
setting forth substantially equivalent information as that required by the form attached as Exhibit
request is made shall cause to be furnished to the Secretary, by the officer or officers so requested, the
6.6.2 and in such form as may mutually be agreed upon with the Secretary, certified by the City and
information sought, or a statement as to why the information is not readily available and, if such
information is reasonably available to the party or the Borrower, a commitment to furnish the same within
approved by the Board.
a reasonable time.
6.6.3. As soon as available and in any event by March 1, 1976, a Statement of Financial Position
of the City as of December 31, 1975 prepared in substantially the form set forth on Exhibit 6.6.3 and
Section 6.9 Further Assurances. From time to time, at the request of the Secretary, each of the parties
annually thereafter a Statement of Financial Position of the City as of the end of the City's Fiscal Year
and any Borrower covenants and agrees to make, execute, acknowledge and deliver such further
as soon as available and in any event by September 30, certified by the City and approved by the
instruments as the Secretary may reasonably request in connection with this Agreement in order to
Board. The Statement of Financial Position as at June 30, 1976 shall show comparable information as
implement the same, and shall file and record, if appropriate, in the proper filing and recording places, any
and all such instruments.
at December 31, 1975 and each annual Statement thereafter shall show comparable information for
the preceding Fiscal Year. Such Statement shall include a written explanation of its contents.
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8
Section 6.10 Signatures and Certifications. Loan Requests, certificates, reports, notices, commu-
Section 7.2 Annulment of Defaults and Waivers by Secretary. The Secretary may waive any provision
nications, financial statements and budgets required under this Agreement shall be signed and certified as
correct by the authorized officers of each of the appropriate parties and any Borrower, as follows (except
of this Agreement or any Note and may consent to such modification of any term hereof or thereof as he
as herein otherwise specifically provided): in the case of the City, by the Mayor and the Comptroller of the
may deem appropriate. An event of default shall be deemed not to be in existence for any purpose of this
City; in the case of the Board, by its Chairman; in the case of the State, by the Governor and the
Agreement if the Secretary shall have waived such event in writing either before or after the occurrence, or
Comptroller of the State; and in the case of any other person, such officer or officers as the Secretary may
stated in writing that the same has been cured to his reasonable satisfaction, but no such waiver shall
designate. Notes issued by the City shall be signed by the Comptroller of the City and attested by the City
extend to or affect any prior or subsequent event of default or impair any right of the Secretary upon the
Clerk and shall bear the certificate of the Board signed by its Chairman. Any officer required to sign or
occurrence thereof except as expressly provided therein.
certify as aforesaid may delegate such responsibility to another authorized person, with the prior approval
Section 7.3 Waivers by Parties. To the extent permitted by applicable law, the parties hereto and any
of the Secretary. With respect to the certification of financial information to be furnished pursuant hereto
Borrower each hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish,
by two or more officers of a party or a Borrower, each of such officers may disclaim information in the
the benefit and advantage of, and does hereby covenant not to assert against the Secretary any stay,
certification which is not within his responsibility so long as all information so disclaimed is certified by
extension, or redemption laws now existing or which may hereafter exist which, but for this provision,
another officer competent to do so.
might be applicable to any right under this Agreement or under the judgment, order or decree of any court
Section 6.11 Outside Borrowings. The City shall use its best efforts on and after July 1, 1977 to meet
in favor of the Secretary based upon this Agreement, and also any requirement for presentation, protest or
the seasonal borrowing needs of the City without resort to borrowings under this Agreement, and the
further demand or notice with respect to a Note already due by its terms.
Board shall in all respects cooperate with the City to that end. Each Loan Request after July 1, 1977 shall
Section 7.4 Course of Dealing. No course of dealing by the Secretary shall operate as a waiver of any
include a certificate of the City stating what efforts to such end have been made and describing the results
rights in respect of this Agreement or any Note. No delay or omission on the part of the Secretary in
thereof.
exercising any right in respect of this Agreement or any Note shall operate as a waiver of such right or any
ARTICLE 7. DEFAULTS AND DEMAND FOR PAYMENT
other right thereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any future occasion. No waiver or consent shall be binding unless it is in writing. The
Section 7.1 Defaults. If any one or more of the following events (herein termed "events of default")
making of any loan hereunder during the existence of an event of default shall not constitute a waiver
shall happen:
thereof.
7.1.1. Any payment of principal or interest on any Note is not made when due;
ARTICLE 8. ADDITION OF BORROWERS
7.1.2. Default shall be made by any of the parties or any Borrower, respectively, in the
performance or observance of any covenant, agreement or provision to be performed or observed by
If the Secretary shall designate or approve a Borrower which is not a party to this Agreement,
it under this Agreement or any Note, or if any representation or warranty of any one or more of them
accession of such Borrower to this Agreement, as it may be amended from time to time, to the extent
made in or in connection with this Agreement shall be materially false; and, in each case, such default
permitted by law, shall be a condition of any loan to such Borrower. The parties and any prior Borrower,
shall not have been cured within ten days after notice from the Secretary;
respectively, hereby consent to the inclusion of any such Borrower as a party hereto and to such changes in
7.1.3. The City or the Corporation or any Borrower shall be involved in financial difficulties as
this Agreement as shall be necessary to incorporate such Borrower into its provisions; provided, however,
evidenced:
that no changes not separately consented to shall increase the duties and responsibility of any of the parties
or any such prior Borrower hereunder.
(a) in the case of the Corporation or any Borrower other than the City, by its admitting in
writing its inability to pay its debts generally as they become due; or
ARTICLE 9. NOTICES
(b) by its filing a petition seeking a composition of indebtedness under the federal
bankruptcy laws, or under any other applicable law or statute of the United States or the State;
Any notice, demand, or other communication in connection with this Agreement shall be deemed to
be given if in writing (which may be in the form of a telegram) and actually delivered at the respective
7.1.4. Default shall be made by any of the parties or any Borrower on any outstanding
addresses shown below or at such other address as may be specified in writing:
indebtedness for borrowed money such as would entitle the holder thereof to demand immediate
payment under applicable law;
If to the Secretary, to him at
7.1.5. An adverse decision is rendered in litigation, which shall not be vacated, set aside or stayed
within ten days from the date thereof, whether in a case pending on the date of this Agreement or
Department of the Treasury
subsequently brought, or any other development takes place, materially and adversely affecting the
15th Street and Pennsylvania Avenue
likelihood of fulfillment of the City Financial Plan; or
Washington, D. C. 20220
7.1.6. There occurs a material and adverse departure from the projections contained in the City
with a copy to
Financial Plan, including the assumptions on which the City Financial Plan is based;
then, and in each and every such event, the Secretary may demand payment immediately in accordance
The General Counsel of the Treasury
with the terms of any demand Note, without notice and without regard to Section 2.12, and may proceed
Room 3000
to protect and enforce the rights of the United States by suit in equity, action at law or other appropriate
15th Street and Pennsylvania Avenue
proceeding.
Washington, D. C. 20220
The remedies prescribed in this Agreement shall be cumulative and not in limitation of or substitution
for any other remedies available to the Secretary or to the United States.
10
11
If to the Corporation, to
If to the City, to
Executive Director
Mayor of The City of New York
Municipal Assistance Corporation for The City of New York
City Hall
Room 4540
New York, New York 10007
Two World Trade Center
and to
New York, New York 10047
Comptroller of The City of New York
with a copy to
Room 530
Paul, Weiss, Rifkind, Wharton & Garrison
Municipal Building
345 Park Avenue
New York, New York 10007
New York, New York 10022
with copies to
Attention: Allen Thomas, Esq.
Corporation Counsel
Copies of notices shall contemporaneously be sent to all parties, to the Secretary, to any Borrower and
Room 1656
to the Corporation, if not the direct giver or recipient of the notice.
Municipal Building
New York, New York 10007
ARTICLE 10. MISCELLANEOUS
and to
Deputy Mayor for Finance
Section 10.1 Amendments. Except as provided in Article 8, amendments to this Agreement shall be
made only upon the written consent of the Secretary and each of the parties.
Room 1401
250 Broadway
Section 10.2 Survival of Covenants. All covenants, agreements, representations and warranties made
New York, New York 10007
herein shall survive the execution and delivery of this Agreement and shall remain in full force and effect
until June 30, 1978 unless sooner terminated by mutual written consent, and thereafter for as long as any
If to the State, to
Governor of the State of New York
principal or interest of any Note remains unpaid. No investigation by or on behalf of the Secretary or
Executive Chamber
audit by the Secretary or his representatives or by the General Accounting Office shall impair or waive the
materiality of any such covenant, agreement, representation or warranty or the right of any person to rely
Capitol Building
thereon.
Albany, New York 12224
Section 10.3 Execution and Assignability. This Agreement may be executed in any number of
and to
Comptroller of the State of New York
counterparts which shall together constitute one instrument and shall inure only to the benefit of the
Alfred E. Smith Building
Secretary and the parties hereto. The Secretary may assign or otherwise transfer any Note only to the
Albany, New York 12224
Federal Financing Bank, which may not reassign or otherwise transfer any such Note, and in such case the
Secretary shall act as its representative with respect to such Note. This Agreement shall take effect upon
with copies to
delivery to each of the parties and other signators, or their representatives, of copies hereof signed by the
Attorney General of the State of New York
Secretary, he having previously received a copy or copies from and executed by each of the parties and
Room 4715
other signators.
Two World Trade Center
New York, New York 10047
Section 10.4 Authority of Secretary. The Secretary represents and warrants that he has all necessary
power and has taken all action required to make this Agreement a legal, valid and binding obligation of
and to
the United States of America. The Secretary may delegate any duty to be performed by him or right to be
Budget Director
exercised by him or the United States of America to such person as he may designate.
Division of the Budget
Section 10.5 Severability. The provisions of this Agreement and of the Notes are separate and
Capitol Building
severable and if any one or more of the provisions contained in this Agreement or any Note should be
Albany, New York 12224
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining
If to the Board, to
provisions contained herein or therein shall not in any way be affected or impaired.
Emergency Financial Control Board
c/o Special Deputy Comptroller for The City of New York
ARTICLE 11. UNDERTAKINGS BY CORPORATION
18th Floor
The Corporation, although not a party to this Agreement, as an inducement to the Secretary to enter
270 Broadway
New York, New York 10007
into this Agreement and to make loans to or for the benefit of the City, covenants, represents and warrants
as follows:
with a copy to
Emergency Financial Control Board
Section 11.1 Notice and Consent to Borrowing. The Corporation has waived and hereby waives all
c/o State of New York Executive Offices
notice required with respect to the borrowing evidenced by the Note being issued by the City
1350 Avenue of the Americas
contemporaneously with the execution of this Agreement in exchange for the temporary note and with
New York, New York 10019
respect to the borrowing evidenced by the Note to be issued on the first Closing Date, and to the extent
13
12
necessary has given its consent or approval thereto. The Corporation will not unreasonably withhold its
THE CITY OF NEW YORK
consent or approval, if required, to future loans to be made pursuant to this Agreement, and will use its
best efforts consistent with its statutory obligations to grant waivers of notice with respect to each such
Approved as to form: Richard
loan.
By Abraham D Beame
Corporation Counsel
Mayor
Section 11.2 Litigation. Except as described in Section 5.2, there is no litigation and no legal or
administrative proceeding pending or threatened against the Corporation, or against any officer of the
Corporation, or by which the Corporation would be bound, which questions the validity of this Agreement
and
or any Note or of any action to be taken pursuant to or in connection with this Agreement or any Note.
Section 11.3 Agreement with Banks and Pension Funds. To the extent permitted by law, the
Corporation will perform all of its obligations pursuant to the Amended and Restated Agreement made as
of November 26, 1975 among the Corporation, certain New York City Commercial Banks, New York City
By 12mm Comptroller \ hold
Pension Funds and New York City Sinking Funds and will take all reasonable steps to assure performance
of such agreement by each of the other parties thereto.
NEW YORK STATE EMERGENCY FINANCIAL
Section 11.4 Corporation as a Borrower. The Secretary and the Corporation recognize that it may
CONTROL BOARD
become necessary or advisable in the future to assist the City by recourse to the resources of the
Corporation as an eligible Borrower under the Act. At such time as the Corporation is authorized by state
law to become a Borrower, is approved by the Secretary as a Borrower, and consents to become a
By
Borrower, the Corporation shall become a party to this Agreement as a Borrower. Thereafter, upon the
execution by the Corporation of a Loan Request, the Corporation shall be bound by all the covenants,
Theyl Chairman / Carry
agreements, conditions, representations and warranties applicable to a Borrower in this Agreement as it
may be amended from time to time, and all loans made to the Corporation shall be made on the terms and
For the Purposes of Article 4 Only:
subject to the conditions set forth herein.
GOVERNOR OF THE STATE OF New YORK
UNITED STATES OF AMERICA
Carry
COMPTROLLER OF THE STATE OF NEW YORK
By Secretary of the Treasury
have most
STATE OF NEW YORK
MAYOR OF THE CITY OF NEW YORK
Abraham D Beame
Approved: ham hust
Comptroller
Hugh By Governor Lary
COMPTROLLER OF THE CITY OF NEW YORK
Danner \. have
and
Approved as to form:
Lefhourt Attorney General
By
Amuel G. Hundrung
May Ame Lieutenant Governor Kryock
For the Purposes of Article 11 Only:
L. J.
MUNICIPAL ASSISTANCE CORPORATION
First assistant Attorney General
FOR THE CITY OF NEW YORK
By CooyD Goved
14
15
City of New York
Credit Agreement
Note Form*
Exhibit 2.3
United States of America
State of New York
THE CITY OF NEW YORK
No.
$
REVENUE ANTICIPATION NOTE FOR (description of Revenues
in Anticipation of which
Note is issued)
THE CITY OF NEW YORK (the "City"), a municipal corporation of the State of New York, hereby
acknowledges itself indebted and for value received promises to pay to the United States of America,
acting by and through the Secretary of the Treasury (the "Secretary") pursuant to the New York City
Seasonal Financing Act of 1975, constituting Public Law 94-143 of the United States of America, on
demand therefor made to the City by the Secretary or on the
day of
, 197 , ,
whichever date is earlier (the "Maturity Date"), the sum of
MILLION DOLLARS ($
)
in federal funds being lawful money of the United States of America, at the Federal Reserve Bank of New
York, 33 Liberty Street, in the Borough of Manhattan, City and State of New York, for credit to the
account of the United States Treasury, and to pay interest thereon on the Maturity Date from the date of
this Note in such federal funds, at the rate of
per centum (
%)
per
annum, computed on a 365 day year, upon presentation of this Note at such Bank.
This Note is issued pursuant to the provisions of the Local Finance Law, constituting Chapter 33-a of
the Consolidated Laws of the State of New York, and Certificate Number
of the City
Comptroller authorizing the issuance of such Note in anticipation of (description of Revenues in
Anticipation of which Note is issued).
This Note is the only Note of an authorized issue, the principal amount of which is $
The City may, at any time and from time to time, prepay (without penalty) all or any part of the
unpaid principal amount of this Note (in integral multiples of $10,000,000) together with interest on the
principal amount so prepaid accrued to the date of prepayment and theretofore unpaid, and from and
after such prepayment interest hereon or on the part prepaid shall cease to accrue.
This Note may not be converted into a bearer note.
This Note is issued as seasonal financing in order that the City may maintain essential governmental
services.
The faith and credit of The City of New York are hereby irrevocably pledged for the punctual
payment of the principal of and interest on this Note according to its terms.
* If the Borrower is other than the City, this form shall be suitably adapted.
IT IS HEREBY CERTIFIED AND RECITED that all conditions, acts and things required by the
CERTIFICATE OF EMERGENCY FINANCIAL CONTROL BOARD
Constitution and statutes of the State of New York to exist, to have happened and to have been performed
precedent to and in the issuance of this Note, exist, have happened and have been performed, and that this
I, as Chairman of the New York State Emergency Financial Control Board (the "Board"), hereby
Note, together with all other indebtedness of The City of New York, is within every debt and other limit
certify, recite and declare that the Board has by Resolution duly adopted and approved the borrowing
prescribed by the Constitution and laws of such State.
evidenced by the within Note and the form, amount, terms, conditions and all matters incident to and
IN WITNESS WHEREOF, The City of New York has caused this Note to be signed by its City
stated in said Note.
Comptroller, and its corporate seal to be hereunto affixed and attested by its City Clerk, and this Note to
be dated as of the
day of
197
THE CITY OF NEW YORK
Chairman of the Emergency
Financial Control Board
City Comptroller
ATTEST:
City Clerk
2
3
REPORT NO. 1
PAGE
OF
MONTH
FISCAL YEAR
NEW YORK CITY
FINANCIAL PLAN SUMMARY
CURRENT MONTH
YEAR-TO-DATE
FISCAL YEAR - 75/76
FISCAL YEAR - 76/77 *
FISCAL YEAR - 77/78 *
REPORT
DESCRIPTION
Better/
Better/
Better/
Better/
Better/
REF.
Actual
Plan
(Worse)
Actual
Plan
Forecast
Plan
Forecast
Plan
(Worse)
Forecast
Plan
(Worse)
(Worse)
(Worse)
REVENUE
5
GENERAL FUND
5
REAL ESTATE TAXES
5
FEDERAL/STATE AID
5
OTHER
TOTAL
EXPENDITURES
8
PERSONAL SERVICES
OTHER PERSONAL SERVICES
OTHER THAN PERSONAL SERVICES
7
TOTAL
2
SURPLUS (DEFICIT)
EXPENDITURES INCLUDED IN
CAPITAL BUDGET
TOTAL OTHER CAPITAL
EXPENDITURES
11
TOTAL CAPITAL BUDGET
* Quarterly only
CREDIT AGREEMENT
NEW YORK CITY
Exhibit 6.6.2
REPORT NO. 2
PAGE
OF
NEW YORK CITY
MONTH
FISCAL YEAR
ANALYSIS OF CHANGE IN FISCAL YEAR FORECAST
FISCAL YEAR
FISCAL YEAR *
FISCAL YEAR *
REPORT
DESCRIPTION
75/76
76/77
77/78
REFERENCE
PRIOR FORECAST OF FISCAL YEAR SURPLUS / (DEFICIT)
CHANGES DUE TO:
GENERAL FUND REVENUE
REAL ESTATE TAXES
FEDERAL GRANTS
STATE GRANTS
EXCESS DISALLOWANCES
OTHER REVENUE
TOTAL CHANGE DUE TO REVENUE
PERSONAL SERVICES
OTHER PERSONAL SERVICES
OTHER THAN PERSONAL SERVICES:
WELFARE & CONTRIBUTIONS
DEBT SERVICE
OTHER
TOTAL CHANGE DUE TO EXPENDITURES
TOTAL CHANGE
1
CURRENT FORECAST OF FISCAL YEAR SURPLUS / (DEFICIT)
VARIANCE FROM PLAN
. Other year projections are to be provided quarterly
REPORT NO. 3
PAGE OF
NEW YORK CITY
MONTH
FISCAL YEAR
OVERALL CASH FLOW STATEMENT
CURRENT MONTH
REPORT
YEAR TO DATE
FISCAL YEAR
2ND YEAR
3RD YEAR
REFERENCE
DESCRIPTION
Better/
Better/
Better/
Better/
Better/
ACTUAL
PLAN
(Worse)
ACTUAL
PLAN
(Worse)
Forecast
PLAN
(Worse)
Forecast
PLAN
(Worse)
Forecast
PLAN
(Worse)
CASH BALANCE - BEGINNING
FINANCIAL PLAN
4 1,2
SURPLUS (DEFICIT)
CAPITAL BUDGET
FUNDS RECEIVED
1
(CAPITAL CONSTRUCTION)
1
(EXPEND. IN CAP. BUDGET)
CAPITAL SURPLUS (DEFICIT)
TOTAL SURPLUS (DEFICIT)
ADDITIONAL SOURCES/USES
NEW TAXES
OTHER
ADJUSTED SHORTAGE (EXCESS)
ADVANCES & DEBT REQUIRED
FEDERAL - RECEIPTS
DISBURSEMENTS
MAC -
RECEIPTS
DISBURSEMENTS
CITY -
RECEIPTS
DISBURSEMENTS
INTEREST PAYMENTS RE
ADDITIONAL DEBT
OTHER
TOTAL
CASH BALANCE - ENDING
* To be updated quarterly
REPORT NO.
4
PAGE
OF
NEW YORK CITY
MONTH
FISCAL YEAR
CASH FLOW MONTHLY FORECAST
REMAINING MONTHS IN FISCAL YEAR
REPORT
REFERENCE
DESCRIPTION
TOTAL YEAR
YEAR-TO-DATE
JULY
AUG
SEPT
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
Forecast
PLAN
B/(W)
CASH BALANCE BEGINNING
FINANCIAL PLAN
3
SURPLUS (DEFICIT)
CAPITAL BUDGET
FUNDS RECEIVED
(CAPITAL CONSTRUCTION)
EXPENDITURES IN CAP. BUDGET
CAPITAL SURPLUS (DEFICIT)
TOTAL SURPLUS (DEFICIT)
ADDITIONAL SOURCES/(USES)
NEW TAXES
OTHER
ADJUSTED SHORTAGE (EXCESS)
ADVANCES & DEBT REQUIRED:
FEDERAL - RECEIPTS
(DISBURSEMENTS)
MAC - RECEIPTS
(DISBURSEMENTS)
CITY - RECEIPTS
(DISBURSEMENTS)
INTEREST PAYMENTS RE:
ADDITIONAL DEBT
OTHER
TOTAL
CASH BALANCE ENDING
NEW YORK CITY
REPORT NO. 5
PAGE 1 OF 3
REVENUE DETAIL BY MAJOR AREA
MONTH FISCAL YEAR
REPORT
CURRENT MONTH
YEAR TO DATE
FISCAL YEAR
REFERENCE
DESCRIPTION
BETTER/
BETTER/
BETTER/
ACTUAL
PLAN
(WORSE)
ACTUAL
PLAN
(WORSE)
FORECAST
PLAN
(WORSE)
GENERAL FUND
SALES TAX
UTILITY TAXES
COMM. RENT TAX
PERSONAL INCOME
CORPORATE INCOME
FINANCIAL TAX
STOCK TRANSFER TAX
FED. REV. SHARING
N.Y. STATE REV. SHARING
WATER CHARGES
ALL OTHER
(REFUNDS)
1
TOTAL
REAL ESTATE TAXES
CURRENT YEAR
PRIOR YEARS
1
TOTAL
GERALD
LIBRARY
REPORT NO. 5
NEW YORK CITY
PAGE 2 OF 3
REVENUE DETAIL BY MAJOR AREA
MONTH
FISCAL YEAR
REPORT
CURRENT MONTH
YEAR TO DATE
FISCAL YEAR
REFERENCE
DESCRIPTION
BETTER/
BETTER/
BETTER/
ACTUAL
PLAN
(WORSE)
ACTUAL
PLAN
(WORSE)
FORECAST
PLAN
(WORSE)
FEDERAL/STATE AID
PUBLIC ASSISTANCE
CURRENT YEAR
PRIOR YEARS
TOTAL
MEDICARE/MEDICAID
CURRENT YEAR
PRIOR YEARS
TOTAL
EDUCATION
CURRENT YEAR
PRIOR YEARS
TOTAL
OTHER
CURRENT YEAR
PRIOR YEARS
TOTAL
1
TOTAL
REPORT NO. 5
NEW YORK CITY
PAGE 3 OF 3
REVENUE DETAIL BY MAJOR AREA
MONTH
FISCAL YEAR
CURRENT MONTH
REPORT
YEAR TO DATE
FISCAL YEAR
REFERENCE
DESCRIPTION
BETTER/
ACTUAL
PLAN
ACTUAL
PLAN
BETTER/
FORECAST
PLAN
BETTER/
(WORSE)
(WORSE)
(WORSE)
OTHER REVENUE
CURRENT YEAR
PRIOR YEARS
1
TOTAL
1
TOTAL - FINANCIAL PLAN REVENUES
OTHER CASH RECEIPTS
PENSION COSTS OF INDEPENDENT
AGENCIES
PAYMENT FOR SERVICES
EXCESS PENSION INTEREST
EARNINGS OVER 4%
SPECIAL ACCOUNT REVENUES
MISCELLANEOUS FUND REVENUES
3
TOTAL
REPORT NO. 5
NEW YORK CITY
PAGE 3 OF 3
REVENUE DETAIL BY MAJOR AREA
MONTH
FISCAL YEAR
CURRENT MONTH
YEAR TO DATE
FISCAL YEAR
REPORT
BETTER/
PLAN
BETTER/
PLAN
BETTER/
ACTUAL
FORECAST
DESCRIPTION
PLAN
(WORSE)
REFERENCE
ACTUAL
(WORSE)
(WORSE)
OTHER REVENUE
CURRENT YEAR
PRIOR YEARS
1
TOTAL
1
TOTAL - FINANCIAL PLAN REVENUES
OTHER CASH RECEIPTS
PENSION COSTS OF INDEPENDENT
AGENCIES
PAYMENT FOR SERVICES
EXCESS PENSION INTEREST
EARNINGS OVER 4%
SPECIAL ACCOUNT REVENUES
MISCELLANEOUS FUND REVENUES
3
TOTAL
REPORT NO. 6
PAGE OF
MONTH
FISCAL YEAR
NEW YORK CITY
ACCOUNTS RECEIVABLE & ADVANCE SUMMARY
REPORT
DESCRIPTION
ACCOUNTS RECEIVABLE
ADVANCES
REFERENCE
BALANCE - BEGINNING $
- NO. WEEKS EXPENDITURES
ADDED RECEIVABLES
EXPENDITURES RELATED TO ADVANCES
ADVANCES RECEIVED
REIMBURSEMENTS RECEIVED
BALANCE - ENDING $
- NO. WEEKS EXPENDITURES
REPORT NO. 7
PAGE
OF
NEW YORK CITY
MONTH
FISCAL YEAR
FINANCIAL PLAN -- EXPENDITURE ANALYSIS
CURRENT MONTH
YEAR TO DATE
FISCAL YEAR
REPORT
RESPONSIBILITY
REFERENCE
AREA
BETTER/
BETTER/
BETTER/
ACTUAL
PLAN
(WORSE)
ACTUAL
PLAN
(WORSE)
FORECAST
PLAN
(WORSE)
SOCIAL SERVICES
EDUCATION
POLICE
HIGHER EDUCATION
ENVIRONMENTAL
PROTECTION
FIRE
ETC.
ALL OTHER
1
TOTAL
MEMO O.T.P.S.
9
ALL CONTRACTS
TOTAL
BERALD
REPORT NO. 8
PAGE
OF
MONTH
FISCAL YEAR
NEW YORK CITY
PERSONNEL CONTROL EXCEPTION REPORT
CURRENT MONTH HEADCOUNT
PAYROLL COST
PROJECTED FOR FISCAL YEAR
TOTAL FULL TIME
TOTAL FULL TIME
REPORT
RESPONSIBILITY
FULL TIME HEADCOUNT
EQUIVALENT HEADCOUNT
CURRENT MONTH
YEAR-TO-DATE
EQUIV. HEADCOUNT
PAYROLL COST
REFERENCE
AREA
BETTER(WORSE)
BETTER/(WORSE)
Better/(Worse)
Better/(Worse)
Better/(Worse)
ACTUAL
BUDGET
ACTUAL
AMOUNT
%
ACTUAL
AMOUNT
%
Actual
Amount
%
Forecast
Amount
%
Forecast
Amount
%
EDUCATION
POLICE
SOCIAL SERVICES
HIGHER EDUCATION
ENVIRONMENTAL
PROTECTION
FIRE
OTHER (Exceptions only)
ALL OTHER
1
TOTAL
REPORT NO. 9
PAGE
OF
MONTH
FISCAL YEAR
NEW YORK CITY
STATUS OF CONTRACTS (NON-CAPITAL) AND OTHER EXPENSES RELATING TO PRIOR YEAR
REPORT
$ CONTRACTS IN PROGRESS
REF.
DESCRIPTION
$ PRIOR YEAR
(CURRENT YEAR)
BEGINNING BALANCES OF
APPROVED CONTRACTS
APPROVED ADDITIONS
ENDING BALANCES
7
EXPENDITURES - MONTH
7
- YEAR-TO-DATE
10
REPORT NO.
NEW YORK CITY
PAGE OF
PROGRAMMED EXPENSE REDUCTIONS
MONTH
FISCAL YEAR
PROGRAM
CURRENT MONTH REDUCTION
YEAR-TO-DATE REDUCTION
FISCAL YEAR
CASH
CASH
PLANNED
FORECASTED ACTUAL
NO.
RESPONSIBLE
Better/(Worse)
Better/(Worse)
DESCRIPTION
Annualized
CASH
CASH
CASH
Annualized
AGENCY
Amount
%
%
CASH
Better/(Worse)
Amount
Annualized
CASH
Annualized
Amount
%
List each program
defined
TOTAL
REPORT NO. 11
NEW YORK CITY
PAGE
OF
CAPITAL BUDGET AND EXPENDITURES REPORT
MONTH
FISCAL YEAR
CAPITAL PROJECT
RESPONSIBLE
BUDGET
EXPENDITURES
PROJECTED EXPENDITURES
BETTER
REPORT
FISCAL
ESTIMATED
(WORSE)
REF.
AGENCY
YEAR
TO DATE
CURRENT
APPROVED
CURRENT
NEXT
TOTAL COST
THAN
NO.
DESCRIPTION
ORIGINAL
REVISED
Total
Current Year
MONTH
BEYOND
YEAR
YEAR
BUDGET
LIST SEPARATELY EACH PROJECT OVER $5 MILLION AND EACH PROJECT WITH A PROJECTED VARIANCE OVER $500,000.
LIST OTHER PROJECTS IN TOTAL BY FISCAL YEAR APPROVED
GRAND TOTAL
REPORT NO. 12
PAGE
OF
NEW YORK CITY
MONTH
FISCAL YEAR
DEBT / DEBT SERVICE
DEBT
DEBT SERVICE BY MONTH
DUE DATES (12 MONTH ROLLING FORWARD)
REPORT
AMOUNT DUE
REFERENCE
ISSUE
Total
DATE
Principal
Interest
Debt
1
2
3
4
5
6
7
8
9
10
11
12
SUBSEQUENT
Service (Next mo.)
FEDERAL:
List each
STATE AND MAC:
List each
OTHER:
X
TOTAL
1842817
REPORT NO.
13
PAGE OF
NEW YORK CITY
MONTH
FISCAL YEAR
EXPENDITURE AND REVENUE SOURCE DETAIL BY CATEGORY
CATEGORY
(Covered Organizations)
FISCAL YEAR BY MONTH
REPORT
REFERENCE
DESCRIPTION
July
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
June
TOTAL
EXPENDITURES:
PLANNED EXPENDITURE
ACTUAL EXPENDITURE
VARIANCE
REVENUE:
TAX LEVY
- PLAN
- ACTUAL
FEDERAL AID
- PLAN
- ACTUAL
STATE AID
PLAN
- ACTUAL
CAPITAL PROGRAM - PLAN
- ACTUAL
OTHER
- PLAN
- ACTUAL
TOTAL REVENUE: PLAN
ACTUAL
VARIANCE
MEMO: Accounts Payable Balance
Note: one page per agency or category
THE CITY OF NEW YORK
EXHIBIT 6.6.3
CREDIT AGREEMENT
ILLUSTRATIVE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
UNAUDITED ACCRUAL BASIS (NOTE 1)
JUNE 30, 197
LIABILITIES
In Thousands
SHORT-TERM DEBT (Note 2):
Revenue anticipation notes
$
Bond anticipation notes
Tax anticipation notes
Other
$
SERIAL BONDS (Note 3) :
Maturing within one year
$
Maturing in one year or more
DEBT REDEEMABLE FROM SINKING FUNDS (Note 3)
ACCRUED LIABILITIES (Note 4):
Vouchers and accounts payable
$
Payroll
Interest on debt
OTHER LIABILITIES:
Advance collection of real estate taxes
$
State aid received in advance
Other
Total liabilities
ASSETS
CASH
$
INVESTMENTS (Primarily U. S. Treasury bills)
RECEIVABLES:
Real estate taxes, less reserve of
million (Note 5)
Other (Note 6) -
Federal government
$
State of New York
Water and sewer rents
Other
Less- Reserve for uncollectibles
MORTGAGES AND RELATED ADVANCES (Note 7):
Mortgages
$
Advances
Less- Reserve for uncollectibles
SINKING FUNDS (Note 3)
OTHER ASSETS
Total assets
LIABILITIES IN EXCESS OF ASSETS (Note 8)
$
The accompanying notes are an integral
part of this statement.
THE CITY OF NEW YORK
EXHIBIT 6.6.3
CREDIT AGREEMENT
NOTES TO ILLUSTRATIVE UNAUDITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT JUNE 30, 197
(1) Sources and significance
of data:
The accompanying statement has been prepared from the
Consolidated Comparative Statement of Current Position
appearing in the Annual Report of the Comptroller of the
City of New York for the Fiscal Year 197 -197 Adjustments
have been made to the data therein reflected to remove budgetary
accounts, add the current portion of long-term debt, accrue
certain liabilities, provide reserves where appropriate
and give recognition to other significant items as necessary to
present data on an accrual basis.
The accompanying statement has not been audited. An audit
examination might result in additional adjustments which would
be required to present fairly the financial position of the
City.
The accompanying statement excludes inventories and capital assets
because the City does not account for these assets.
(2) Nonrecognition of subsequent
events:
The accompanying statement does not give recognition to events
occurring or policies adopted subsequent to June 30, 197
which may have affected the financial position of the City as
reported at June 30, 197 Particularly, no recognition is
given to loans from Municipal Assistance Corporation or to the
moratorium declared with respect to payments of short-term debt.
(3) Funded debt:
At June 30, 197 , outstanding serial bonds aggregating $
have maturities as set forth below:
Interest
Total
Fiscal Year
Principal
Payments
Service
(In thousands)
1976
$
$
$
1977
1978
1979
1980
1981-1985
1986-1990
1991-1995
1996 and thereafter
$
$
$
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In addition, there were outstanding at June 30, 197 , $
of bonds redeemable from sinking funds. At June 30, 197 , the
related sinking funds had investments of $
($
of which were securities of the City). Current computations
indicate that interest on sinking fund securities will be
sufficient to provide the additional amounts necessary to
fully repay sinking fund bonds as they mature.
(4) Accrued liabilities:
Since the City does not follow encumbrance accounting and since
invoices and purchase orders are controlled at the agency
level, centralized accounting is aware of accounts payable
only to the extent of vouchers in process of payment, of
which there were $ million at June 30, 197 . An additional
$
million, which was estimated by the City as the liability
for goods or nonpersonnel services received by agences but
not yet submitted for payment as of June 30, 197, has been
accrued and included in vouchers and accounts payable in the
accompanying statement.
The accrued payroll estimate provided by the City recognizes the
liability for personnel services performed prior to July 1, 197,
but paid in July, 197 .
(5) Real estate taxes:
The City records each year's real estate tax levy as revenue
and as receivable at the beginning of each fiscal year with
no provision for uncollectible amounts. At June 30, 197, the
City's books reflected real estate taxes receivable of
$
applicable to the fiscal years shown below:
Receivable in
Thousands
Levy for:
1974-75
$
1973-74
1972-73
1971-72
1970-71
1939 through 1969-70
Less- Adjustments resulting
from audit by Office of
the State Comptroller:
Write-off of erroneous
receivables
Provision for uncollectible
amounts
Net receivable, per
accompanying statement
$
LIBRARY
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(6) Other receivables:
The City receives partial reimbursement from the Federal
government and from the State of New York for expenditures
made in connection with certain programs. In addition to
recording receivables for expenditures actually made, the City
has recorded as receivable at June 30, 197 reimbursements for
programs budgeted for the fiscal year ended at that date but
for which expenditures had not as yet been recorded; this
is contrary to the matching of revenues and expenses achieved
by proper accrual accounting.
During 197, the Office of the State Comptroller reviewed recorded
receivables for reimbursements for seven agencies of the City
and determined that, of $373.2 million on the books as of
March 31, 1975, which related to the fiscal years ended June 30,
1973 and 1974, only $48.7 million were valid receivables.
At June 30, 197, the City had recorded $ million of
receivables for prior year reimbursables; this amount was
reduced by $
million to reflect the review described above.
In addition, a reserve of $
million has been provided in
accordance with an estimate by the City to allow for the
advance recognition of revenue at June 30, 197, and to provide
for possible disallowances.
The other accounts receivables at June 30, 197 , were:
Thousands
Prior year reimbursables (after adjustment)
$
Miscellaneous current year reimbursables
Receivable for urban renewal notes
Assessments receivable
Real estate taxes under Chapter 648
$
(7) Mortgages and advances:
In connection with housing programs, the City holds mortgages on
certain real estate and has made advances to certain contractors
for projects which will eventually be covered by mortgages.
A large percentage of the mortgages is in a delinquent status
at June 30, 197 Furthermore, the City has expressed a desire
to sell the mortgages at a discount. A reserve of $
million has been provided to reflect the probability that the
City will not receive full payment for recorded mortgages. The
City estimates that $
million of the recorded mortgages
and advances will be collected within one year.
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(8) Unrecorded liabilities
and commitments:
The accompanying statement does not include any liability for
pension expense, although it has been determined that the
City's pension funds are underfunded on an actuarial basis
by approximately $ billion.
The City leases many of the facilities in which it conducts its
operations. To remove the cost of many of these leases from
the expense budget, the City entered into three-year lease
agreements to be funded by serial bonds. Authorizations for
such leases for 197 -7 aggregated $
million, which as
a result of the funding was not in the expense budget. All
other leases to which the City is a party are for terms of
one year or less.