Court Opinion

ID: 9301426
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:07:48.606636+00
Date Added: 2024-06-11T17:13:41.899704
License: Public Domain

STRONG, Circuit. Justice.
This is an appli•cation made by the trustee and committee •chosen and appointed under the 43d section of the bankrupt act, as well as by some of the creditors of the bankrupts, for a review ■of an order of the district court directing a •second meeting of creditors for the purposes stated in the 27th and 28th sections of the act.
Several objections have been made to the ■order, only one of which do we propose now to notice. It is that three-fourths in value of the creditors whose claims have been proved, having determined that the estate shall be wound up in the manner prescribed by the 43d section, and their resolution having been confirmed by the district court, there is no longer any power in that court to order a meeting of creditors for the purposes mentioned in the 27th and 2Sth sections of the bankrupt act, and that such meeting, if called, would have • no authority • to resolve and direct as contemplated in those sections.
The bankrupt act of 1867 has very plainly provided two very different systems for winding up, settling, and distributing the estates of bankrupts. The first, and the ordinary one, is that presented by the 27th and 28th sections, applicable to all cases when the greater part of the creditors in number or in value who have proved their debts, at their first meeting choose an assignee, or assignees, or where the district judge or the register appoints one or more assignees. In such cases the 27th section requires that a general meeting of the creditors be called at the expiration of three months from the adjudication of bankruptcy, or earlier if the court so direct, and requires the assignee to report to the meeting as well as to the court an account of his receipts and payments. The assignee is also required to submit to the meeting the schedule of the bankrupts, creditors, and property as amended, and a statement of the whole estate of the bankrupts as then ascertained, of the property recovered and of the property outstanding, specifying the cause of its being outstanding, also what debts or claims are yet undetermined, and stating what sum remains in his hands. The section further enacts that at such meeting the majority in value of the creditors present shall determine whether any, and what part of the proceeds of the estate, after certain deductions, shall be divided among the creditors, with a proviso that unless at least one-half in value of the creditors shall attend such meeting either in person or by attorney, it shall be the duty of the assignee so to determine, and in case a dividend is ordered, the assignee is required to pay it under the direction of the court.
By the 28th section provision is made for a second and third meeting of the creditors, with like powers, and it is enacted that at the third meeting called by the court a final dividend shall be declared, unless an action at law or suit in equity be pending, or unless some other estate or effects of the debtor after-wards come to the hands of the assignee, in which case the assignee shall, as soon as may be, convert such estate or effects into money, and within two months after the same shall be so converted, it is required to be divided in manner aforesaid. It is further directed that after the third meeting of the creditors no further meeting shall be called, unless ordered by the court; and it is enacted that if at any time there shall be in the hands of the assignee any outstanding debts, or other property due or belonging to the estate which cannot be collected and received by the assignee without unreasonable or inconvenient delay or expense, the assignee may, under the direction of the court, sell and assign such debts or other property in sucn manner as the court shall order.
Thus it appears that under those provisions very large powers over the winding up, set*426tlement, and distribution of a bankrupt's estate are given to the district court and to a majority in value of the creditors who may be present at a general meeting, or, in case a majority in value are not present at the meeting, to the assignee. But the 43d section of the act. prescribed another system, the obvious purposes of which were to arrest the ordinary mode of proceeding to wind up, settle, and distribute a bankrupt’s estates, to suspend some of the powers conferred upon the district court, and to confer upon representatives of the creditors authority not to be exercised by the general body. The system was extraordinary. It was borrowed from a system which had previously existed in Scotland and in England, which had for its object the withdrawal of the bankrupt’s estate from the courts in certain cases, and placing its - administration in the charge of the bankrupt himself, or in that of the chosen representatives of the creditors.
An examination of the provisions of that section shows very clearly that such was its object, and that the powers conferred thereby are inconsistent with the continued existence of the powers given by the 27th and the 28th sections. It is entitled “Of Superseding the Bankrupt Proceedings by Arrangement” It is true, proceedings under it are declared to be proceedings in bankruptcy, but the ordinary proceedings are superseded by it, and a different system is substituted. It enacts that “if, at the first meeting of creditors, or at any meeting of creditors to be specially called for that purpose, and of which previous notice shall have been given for such length of time and in such manner as the court may direct, three-fourths in value of the creditors whose claims have been proved shall determine and resolve that it is for the interest of the general body of creditors that the estate of the bankrupt should be wound up and settled, and distribution made among the creditors by trustees, under the inspection and direction of a committee of the creditors, it shall be lawful for the creditors to certify and report such resolution to the court, and to nominate one or more trustees to take and hold and distribute the estate under the direction of such committee. If it shall appear to the court, after hearing the bankrupt and such creditors as may desire to be heard, that the resolution was duly passed, and that the interest of the creditors will be promoted thereby, it shall confirm the same; and upon the execution and filing by or on behalf of three-fourths in value of all the creditors whose claims have been proved, of a consent that the estate be wound up and settled by said trustees according to the terms of such resolution, the bankrupt, or his assignee, if one has been appointed, is required to convey all the property and estate of the bankrupt to the trustee nominated, who thenceforth shall hold it with all the powers and rights which the bankrupt would have had if no-proceedings in bankruptcy had been taken, or as the assignee would have had were no such resolution passed, and with all the rights and powers of assignees in bankruptcy.”
The section also declares that the consent of the three-fourths in value of all the creditors whose claims have been proved, when filed, and the proceedings thereunder, shall be as binding in all respects on any creditor whose debt is provable, who has not signed the same, as if he had signed it, and on any creditor whose debt, if provable, is not proved, as if be had proved it, and the trustee is directed to proceed to wind up and settle the estate, under the direction and inspection of such committee of the creditors. Still further, it is enacted, that the bankrupt shall have the like right to apply for and obtain a discharge after the passage of such resolution and the appointment of such trastee, as-if such resolution had not been passed, and as if all the proceedings had continued in the manner provided in the sections of the act preceding the 43d. This last provision, if it were the only one, would leave no doubt in our minds that the manner of winding up. settling, and distributing the estate was intended to be different from that contemplated by the 27th and 28th sections of the act. And if this is not so, the 43d section has accomplished no practical results.
If, when three-fourths in value of the creditors who have proved their debts have resolved that the estate shall be wound up, settled, and distributed under the direction, not of the court, or the general body of the creditors, but of a committee chosen by them, and their resolution has been confirmed by the court, and when consent to such an administration has been filed, either the court,, or a general meeting of the creditors, can control the discretion thus vested in the committee; if a general meeting of creditors composed of one-half in value may determine what part of the estate shall be divided, and when a dividend shall be made, how does the manner of administering the estate differ in substance from the ordinary manner prescribed in the 27th and the 28th sections? What becomes of the power of the committee to direct the settlement and distribution? Moreover, It is worthy of observation that three-fourths in value of the creditors are required for the adoption of the resolution, and only one-half in value are required by the 27th section to constitute a creditors’ meeting, competent to exercise the powers described in that section. May a majority of the creditors in value, present at such a meeting, annul or override the action of the trustee and committee chosen by three-fourths? If so, how can it be said that the creditors who did not sign the consent that the estate should be wound up, settled, and distributed according to the terms of the res*427olution adopted by three-fourths and confirmed by the court are bound by the consent and proceedings thereunder, as the statute declares they shall be?
The questions when a dividend shall be made, and what portion of the estate in the trustee’s hands shall be divided at any particular time, as well as what sums shall be retained to provide for all undetermined claims not proved, other expenses, and contingencies, are questions relating directly to the settlement and distribution of the estate. By directing that over the settlement and distribution the creditors’ committee shall have the direction, the statute, in our opinion, has withdrawn control over them from every other power, and to that extent has superseded the ordinary proceedings in bankruptcy. And* this, we think, was not without reason. The ordinary proceedings are intended to be summary. It is intended by them to conclude the settlement and distribution with the utmost dispatch. Thus, the 28th section requires a second meeting of creditors to be called at the expiration of six months from the adjudication of bankruptcy, or earlier, and at a third meeting, when a final dividend is to be declared, unless an action at law or a suit in equity be pending, or other estate come to the hands of the assignee, in which case he is required to convert it into money, as soon as may be, and within two months after such conversion the money is directed to be divided. And it is provided that if at any time there shall be in the hands of the assignee any outstanding debts or other property which cannot be collected and received by him without unreasonable delay or expense, he may sell such debts or property under the direction of the court. It was such hurried settlement of the estate that was regarded as prejudicial in some cases to the interests of the creditors. For this reason, both in the Scotch and English law, provision was made for administering bankrupt estates in some eases by the creditors themselves, or by the bankrupt under their direction. And for the same reason the 43d section of our act was enacted, by which the power to direct was given to certain representatives of the creditors; that is, to a committee chosen by them. No doubt if that committee exercise their discretion mala fide they may be controlled, but in the absence of fraud their direction to the trustee must be conclusive. Certainly the discretion vested in them cannot be controlled by any meeting of the creditors called after their appointment.
Holding such opinions, we feel constrained to reverse the order of the district court, which directed a second meeting of the creditors of the bankrupts for the purposes mentioned in the 27th and 2Sth sections of the bankrupt act. The order of the district court is reversed.