IN RE NORTH CONTINENT UTILITIES CORPORATION

• Decision Date: 07 July 1945
• Docket Number: No. 355.,355.
• Parties: In re NORTH CONTINENT UTILITIES CORPORATION.
• Court: U.S. District Court — District of Delaware

61 F. Supp. 419

In re NORTH CONTINENT UTILITIES CORPORATION.

No. 355.

District Court, D. Delaware.

July 7, 1945.

David K. Kadane, Sp. Counsel, and Arthur Goldman, both of Philadelphia, Pa., for Securities and Exchange Commission.

Sydney K. Schiff (of Pam, Hurd & Reichmann), of Chicago, Ill., for North Continent Utilities Corporation.

Helmer Hansen, of Chicago, Ill., for Preferred Stockholders' Committee.

LEAHY, District Judge.

The court approved a Sec. 11(e) plan of North Continent Utilities Corporation under the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79 et seq. See D.C., 54 F.Supp. 527. The plan called for satisfaction of the company's debentures by pro-rata payments of cash as assets were sold from time to time. The March 17, 1944, order of approval provided, among other things, that the Court take exclusive jurisdiction over the company and its assets. Paragraph 2 of the order specifically provides: "North Continent Utilities Corporation shall retain possession of its assets and continue the operation of its business through its officers, directors and employees and in accordance with its Articles of Incorporation and its By-Laws, except as otherwise provided by this Order or any subsequent order herein". The SEC now moves to amend the above paragraph by adding an additional sentence which will read: "North Continent Utilities Corporation until further order of this Court may enter into transactions not inconsistent with the plan, including sales of its assets or assets of its subsidiaries, upon the filing of appropriate applications and declarations with, and the entry of appropriate orders by the Securities and Exchange Commission, in conformity with the Public Utility Holding Company Act of 1935 and the rules, regulations and orders promulgated and issued thereunder."

The proposed amendment should be allowed. The plan contemplates complete liquidation of North Continent. Since the order of approval was entered, it has been and now is disposing of its assets by selling portfolio securities and physical assets of its subsidiary companies engaged in the gas and electric utility business and in the ice and mining nonutility businesses. The proposed amendment, in short, simply affirms the SEC's reservation of jurisdiction in its order approving the plan under date of November 16, 1943, i. e., its reserved jurisdiction in respect of "any steps taken to effectuate disposition of North Continent's assets". As assets are transmuted into cash, Sec. 12(d) of the Act becomes operative. That section provides: "It shall be unlawful for any registered holding company, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, to sell any security which it owns of any public-utility company, or any utility assets, in contravention of such rules and regulations or orders regarding the consideration to be received for such sale, maintenance of competitive conditions, fees and commissions, accounts, disclosure of interest and similar matters as the Commission deems necessary or appropriate in the public interest or for the protection of investors or consumers or to prevent the circumvention of the provisions of this title or the rules, regulations, or orders thereunder."

The question raised by the motion to amend the order of March 17, 1944, is whether approval of this court must also be obtained in respect of each sale of assets, because this court has retained exclusive jurisdiction of those assets. We do not think that such court approval is necessary.

Homewood v. Standard Power & Light Corporation, D.C.Del., 55 F.Supp. 100, 103, suggested the necessity to integrate the Public Utility Holding Company Act into the judicial process in view of the SEC's statutory duties. The present matter is another illustration of the same thought. Sec. 12(d) was designed to protect investors against any sacrifice of their equity in the sale of their assets.¹ SEC's Rule U — 44 was promulgated to carry Sec. 12(d) into effect.² Form U — 1 is a declaration which must be filed in connection with the sale of any asset. It provides for minute...