Court Opinion

ID: 6844125
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:25:22.193168+00
Date Added: 2024-06-11T16:04:56.083073
License: Public Domain

On Petition for Rehearing.
BINGHAM, Circuit Judge.
February 3, 1930, creditors filed an involuntary petition against the appellant, alleging insolvency and an assignment for the benefit of creditors. February 4, the alleged bankrupt filed a petition for a meeting of creditors to consider an offer of composition of 25 per cent, cash, and the same day the ease was referred to the referee “to hear and determine all mailers of fact relating to said meeting and the proposed offer in composition.” February 12, 1930, the alleged bankrupt raised its offer in composition to 30 per cent, and, on March 4, 1930, to 35 per cent.
May 22, 1930, the referee filed his report in which he found that the bankrupt, two days before it made the assignment for the benefit of its creditors (the act of bankruptcy charged), obtained a loan from one Poorvu of $65,000; “with intent to hinder, delay and defraud creditors”; and, while he reported a finding that the formal requisites of a composition had been complied with, he expressed belief that the composition ought not to be confirmed, and recommended that the alleged bankrupt be adjudicated forthwith.
On June 3, 1930, the bankrupt filed an application for confirmation of composition under section 12b, Bankr. Act (11 USCA § 30(b); June 27 two creditors filed objections to the confirmation, and, on the same day, the bankrupt filed a motion to strike out that part of the referee’s report wherein he found that the bankrupt procured said loan with intent to hinder, delay, and defraud its creditors; and also filed a motion to^ recommit the report to the referee for the same purpose. June 27, 1930, both motions were denied, and on the same day the District Court ordered the application for confirmation he denied and ordered adjudication.
This appeal is from the order denying the application for confirmation and from the order of adjudication, and was allowed by the District Court.
There is nothing in the record showing that, after the bankrupt filed its application for confirmation, any “date and place” were fixed for a hearing upon the application; nor does it appear from the record that, after the application for confirmation was filed, notices were sent to creditors, or that they had waived notice in writing, as required by section 58 of the Bankruptcy Act (11 US CA § 94). Section 58 expressly requires ten *714days’ notice of “all hearings upon applications for the confirmation of compositions.”
In our opinion of November 26, 1930, it was held that the order of reference of February 4, 1930, was “broad enough to give him [the referee] the jurisdiction . he assumed, to deal with the- facts, including the fraud of the bankrupt on his creditors.” Reconsideration of the matter discloses that it is entirely immaterial whether the order of reference was broad enough to give the referee that jurisdiction or not. The question is, not whether the order was broad enough, but whether, at the time the order of reference was made, the District Court had jurisdiction to make an order authorizing the referee to pass upon the question—whether the bankrupt had been guilty of an act to defraud its creditors, a violation of the Bankruptcy Act.
The application for confirmation was filed June 3, 1930, substantially four months after the order of reference was made, and some time after the referee’s report was filed. The filing of the application was the bringing of a proceeding in bankruptcy. It could not be filed in the bankruptcy court “before” the offer'' in' composition was accepted by a majority in number and amount of all creditors whose claims had been allowed, and, by the express language of section 12b, it had to be filed “after” that time; and, when filed, the court, was required to fix “a date and place” of hearing (section 12e, 11 USCA § 30(c) thereon; and, having done this, order notice to creditors as required by section 58. When these things were done, and then only, did the court have jurisdiction over the proceeding and authority to order a reference to a referee or master to hear and determine the f aGts material to the granting -or denial of the bankrupt’s application for confirmation.
It is clear that the court was without jurisdiction to make such an order, for, at the time, no application for confirmation had been filed. Consequently, the motion of the bankrupt to strike out the finding abpve referred to should have been granted and the finding not considered.
The order of reference of February 4, 1.930, was too broad, for at the time it was made, no. application for -confirmation had been filed and served, and the court was then without power to refer matters relating to granting or .denying an application for composition, in case one should be thereafter made.
.i If rules ,16, sub. (5), is in conflict with this opinion, it is too broad and invalid.
It is not clear on the record whether the order of adjudication was entered under the discretionary power of the court to make such order before or after composition, or was based on the finding of the referee, which had been improperly included in his report. If the latter, then the order of adjudication should be vacated; otherwise not.
We are also of the opinion that the appeal was properly taken in the District Court from the order denying confirmation of the composition (section 25a(2), 11 USCA § 48 .(a) (2); for in this ease the order denying the confirmation was based on the finding that the bankrupt had committed an act of fraud on its creditors and in violation of the Bankruptcy Act, which finding of fact, as a plea, would be a bar, and as evidence would be conclusive on the bankrupt’s application for its discharge, provided its estate was wound up in bankruptcy. Sawyer v. Orlov (1st Cir.) 15 F.(2d) 952; Sutton v. Wentworth (1st Cir.) 247 F. 493, 501.
We have held that an order granting an application for confirmation operates as a discharge in bankruptcy (Rosenberg v. Borofsky, 295 F. 500), and, where a denial of confirmation is based upon a finding of fact which, if pleaded, would be a bar, and as evidence would be conclusive on an application for a discharge in winding up a bankrupt’s estate, it is likewise an order denying a discharge, and appealable under section 25a (2), though made in a proceeding for confirmation. United States v. Hammond (6th Cir.) 104 F. 862; In re McVoy Hardware Co. (7th Cir.) 200 F. 949, 950. See, also, Sawyer v. Orlov, supra.
Our decree of November 26, 1930, affirming the decree of the District Court, must be vacated, and our order is:
The decree of the District Court denying confirmation is vacated and the ease is remanded to that court for further proceedings not inconsistent with this opinion; no Costs.