COMPOSITION

At any time after the first meeting of creditors the insolvent may submit to his trustee a written offer of composition. If the trustee is of the opinion that the creditors will probably accept the plan he will send to each creditor, by registered mail, a copy of the offer together with his report thereon. If, on the other hand, he doubts the acceptability of the offer it will be rejected. The insolvent has a right of appeal to the Master against the latter action. Whenever the trustee submits an offer to creditors he will arrange a meeting in order that the proposed composition may be given full consideration.

If the offer is accepted by creditors whose votes amount to not less than three-quarters in value and three-quarters in number, and payment has been made, or security given for the composition, it will then be deemed as accepted and the Master will issue a certificate to that effect. The offer of composition binds all secured creditors but the creditors holding preferred claims are affected only in so far as they may have waived their preference.

REHABILITATION

An insolvent who has been able to arrive at a compromise with his creditors may apply to the Court for an order of rehabilitation. Three weeks before filing his application he must publish a notice of his intention to petition the Court and a copy of the notice must be placed in the hands of his trustee. Rehabilitation may be sought in this manner only where the insolvent is able to show that he has paid not less than 7/6 in the pound on each claim of all unsecured creditors.

If the insolvent is not entitled to apply for rehabilitation under the above plan, but has previously given to the Master and to his trustee six weeks written notice of his intention and has advertised this intention in the Gazette, he may then apply:

(a) After twelve months have elapsed from the confirmation by the Master, of the first trustee's account, or,

(b) After three years have elapsed from such confirmation if his estate has been sequestrated prior to the sequestration to which he desires to put an end, or,

(c) After five years have elapsed from the date of his conviction of any fraudulent act in relation to his existing or any previous insolvency.

Under the last mentioned system of rehabilitation, however, no application will be granted before the expiration of a period of four years from the date of sequestration of the estate of the applicant, without the approval of the Master.

The time limits as above set forth are not intended to apply in instances where there has been no claim proved against the estate and where there has been no conviction or a prior sequestration. In the absence of limitations that may be imposed by the Court, the granting of an order for rehabilitation will have the following effect:

Effect of Rehabilitation.

(a) of putting an end to the sequestration;

(b) of discharging all debts of the insolvent, which were due, or the cause of which had arisen, before the sequestration, and which did not arise out of any fraud on his part;

(c) of relieving the insolvent of every disability resulting from the sequestration.

When the insolvent has not been convicted of a fraudulent Act with respect to a present or prior sequestration, if his estate was not sequestrated under any law prior to the sequestration he is attempting to terminate and if no claims have been proved against his estate, the granting of an order for rehabilitation will also reinvest the insolvent with his estate.

A rehabilitation will not, however, affect:

(a) The powers or duties of the Master or the duties of the trustee in connection with a composition;

(b) The rights of the trustee or creditors under a composition; (c) The right of the trustee or creditors to any part of the insolvent's estate which is vested in but has not yet been distributed by the trustee;

(d) The liability of a surety for the insolvent;

(e) The liability of any person to pay any penalty or suffer any punishment under the provisions of the Act.

CONCLUSION

Attention is also directed to the complete abolition of that section of the 1926 Act providing for the assignment of estates. Insolvency proceedings alone may now be resorted to.

The Act contains numerous provisions relating to criminal liability for concealment, fraud, or other improper conduct on the part of the persons concerned, and imposes various forms of punishment for these acts. This, however, finds no place in the present discussion in that its purpose has been merely to attempt a brief outline of procedure under the Union's system of handling insolvency cases, and then only to the extent that the provisions of the Act come within the confines of law in its commercial aspect.

The third session of the 75th Congress which ended on June 16, 1938, was productive of much legislation affecting business. The following legislative enactments are in addition to those appearing in previous issues of Comparative Law Series.

Collective Trade Marks. The Act of June 10, 1938 (Public No. 586) to authorize the registration of certain collective trade-marks, amends Section 1 to permit any natural or juristic person, including nations, states, municipalities, and the like, which exercises legitimate control over the use of a collective mark, to obtain registration of such mark.

Paragraph b of Section 1 is amended to provide for the registration of "collective" marks which have been in bona fide use for not less than one year in interstate commerce even though the natural or juristic persons, and nations, states, municipalities, and the like, exercising the control over the use of such marks do not possess an industrial or commercial establishment.

Section 4 of the Trade Mark Act of 1905 is amended by eliminating the proviso for the registration of foreign collective trade-marks. Section 29, which provides the rule of construction for the Act of 1905, is also amended to define the term "juristic person" to include a firm, corporation, association, or similar organization capable of suing and being sued in a court of law.

Clearance of Vessels. Public No. 656, approved June 16, 1938, amends section 4197 of the Revised Statutes, as amended (U.S.C. 1934 edition, title 46, sec. 91), and section 4200 of the Revised Statutes (U.S.C. 1934 edition, title 46, sec. 92) to provide for the clearance of a vessel upon filing an incomplete manifest and giving bond to furnish complete manifest within four days after clearance under penalty of fine of $50 for each day up to those days in excess of the allowed period of four days, and $100 for each day thereafter.

Federal Bankruptcy Act. The Federal Bankruptcy Act (Public No. 696), approved by The President on June 22, 1938, is an Act to amend an Act entitled "An Act to establish a uniform system of bankruptcy throughout the United States", approved July 1, 1898, and acts amendatory thereof and supplementary thereto; and to repeal sections 76 thereof and all acts and parts of acts inconsistent therewith, which is the general provision of our bankruptcy law and, in general, proposes to modernize and bring this law up to date.

Amendments have been made to clarify certain of the definitions and to add desirable new definitions; to straighten out the statement of the acts of bankruptcy in order to avoid the present overlapping of the third and fourth acts; and to enlarge the fifth act the better to cover and curb equity receiverships. Amended definitions adjudication, appellate courts, bankrupt, corporation, court, documentation, holiday, officer, transfer, trustee, laws, composition, and phraseological amendments.

are

New definitions include bona fide purchasers, date of adjudication, forms, to record, and relatives.

Amendments to increase efficiency in administration include (1) shortening of administrative periods of time, thus speeding up the proceedings; (2) the restricting of expenses, allowances, and priorities, and facilitating increased realizations with the consequent building up of dividends for creditors; (3) the extension of the jurisdiction of referees, raising the requirements as to their qualifications, and enlarging their duties; (4) the appointment of creditors' committees to cooperate with the court; (5) the summary enforcement of liabilities on bonds to the court; (6) the regulating of ancillary receiverships; and (7) the coordination of receivership proceedings in other courts with bankrupt proceedings pending adjudication.

The amendments which seek to make clear the provisions relative to the jurisdiction of bankrupt courts include the clarification of the provisions of section 2 relating to jurisdiction of the courts and extending the jurisdiction to cover matters not included in the present act.

The amendments for the improvement of the procedural sections of the Bankruptcy Act provide for the safeguarding of real estate titles, examination of hostile witnesses, proceedings for discovery, practice on appeals and tolling of the statutes of limitation.

Amendments designed to tighten the provisions for the enforcement of the criminal provisions of the law: (1) broaden the scope of the section to include "debtors" in the new procedures; (2) strengthen the language in the section defining the various offenses thereunder; and (3) provide for report to referees of investigations by United States attorneys.

In order to minimixe evasions by bankruptcy, amendments have been made which provide for the (1) filing of schedules with petitions in bankruptcy in voluntary cases; (2) examination of bankrupts in all cases; (3) filing of statements of affairs; (4) filing cost inventories; (5) apprehension and extradition of bankrupts; and (6) other provisions preventing evasion.

Amendments granting new privileges in favor of bankrupts include the elimination of application for discharge, the discharge from payment of federal taxes, the payment of traveling expenses while attending examinations except at the first meeting and hearing upon objections to discharge, the privilege of being examined out of the district by permission of the court, the preservation of the bankrupt's right to exemptions to the spouse or dependent children surviving at death, and, new procedure added in new chapters.

In order to perfect the section relative to preferences, liens, and fraudulent conveyance, and the title of the trustee, the amendment provides a better definition of preference, improves the provisions for the recovery of preferences, furnishes uniform rules for the liquidation of estates of bankrupt stock brokers; and, revises the present section relative to liens, including within the act, condensed provisions of the Uniform Fraudulent Conveyance Act; enlarges the title of the trustee; and perfects the trustee's defenses.

Amendments for a more workable partnership section provide (1) that a joint petition may be filed by or against a partnership as an entity and one or more of the partners; (2) non-joining partners may contest the proceeding; (3) where all the partners are individually adjudicated, the partnership entity itself, without further petition is also adjudged bankrupt; (4) a separate trustee may be appointed for the estate of an individual bankrupt partner where cause, therefore, is shown; (5) the discharge of the partnership shall not discharge the individual general partners; and (6) the section is applicable to limited partnerships.

Provision is made to prescribe an improved composition procedure, including certain of the so-called relief provisions of the act for individual compositions and extensions and a carefully prepared plan for corporate reorganization, retaining the desirable permanent provisions of the new legislation and eliminating cumbersome, overlapping and inconsistent provisions; also providing for wage earner amortizations and real property arrangements by unincorporated persons.

Merchant Marine Act Amendment. The Act of June 23, 1938, (Public No. 705), amends the Merchant Marine Act of 1936, in order to facilitate a more effective and efficient administration of the Act.

Provision is made for the Commission to make such extension and accepts such renewals of the notes and other evidences of indebtedness, transfers, and of the mortgages and other contracts securing the same as it may be necessary to carry out the objects of the Act.

A provision is added to clarify the Commission's power to make disbursements, and the Act specifies that the Comptroller General's power is limited to auditing the accounts of the Commission and report to Congress of any discrepancy. The limitation of subpoena ing witnesses only within their federal judicial districts is removed. A new section authorizes the Commission to acquire by purchase or otherwise such vessels constructed in the United States as it may deen necessary to establish, maintain, improve, or affect replacements upon any service, route, or line, in the foreign commerce of the United States, and to pay for same out of its construction funds. The Commission is given permission to initiate action affecting changes in employment and wage conditions. Any complaints made by either officers or crews are to be made to the Maritime Commission. The Act defines the formula for construction differential subsidies and provides that the differential shall not exceed 33 1/3 percent of the construction cost, with exceptions permitted up to 50 percent. A new arrangement is set up as to cash payments required in the building of vessels, cash payments to be 25 percent of the price of the vessel to buyer, the interest rate on the remaining sum to be paid as set at 3 percent. An applicant who finances construction of his ship is permitted to choose his builder, but the Commission will base the subsidy payments on the lowest bid. Unless a ship owner operates exclusively in foreign trade, he must return a portion of the subsidy allowed him to the Commission.

Permission is given the Government to grant financing allowances to pay national defense subsidies, to aid in the construction of ships operated in the domestic trade. The Act provides that by unanimous consent the Commission subsidies in excess of the normal limits may be paid when such payments are needed to offset Governmental aid paid to foreign competitors. The provision dealing with the administration of operating differential subsidy contracts is enlarged upon; the changes to be based on a period of from 5 to 10 years.

The section of the 1936 Act which cancels a contract in the event a holder has filed a petition in bankruptcy is repealed. Provision is made for the ship owner to transfer to a foreign registry before the Government cancels the contracts or withdraws subsidies when the contractor has not defaulted.

Authorization is given for the subordination of the Commission's interest as mortgagee in any vessel in favor of a loan by the Reconstruction Finance Corporation when such action will further the policies of the Merchant Marine Act.