Court Opinion

ID: 9444614
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:06:12.146086+00
Date Added: 2024-06-11T17:29:55.924166
License: Public Domain

GALSTON, District Judge
(dissenting).
I do not believe that Securities and Exchange Commission v. United States Realty & Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293, compels an affirmance of the order below. Rather the circumstances presented in the present proceeding are essentially, in principle, the same as are set forth in In re Transvision, Inc., 2 Cir., 217 F.2d 243. Judge Medina, in the Transvision opinion, weighed both Securities and Exchange Commission v. United States Realty & Improvement Co., supra, and Mecca Temple, etc. v. Darrock, 2 Cir., 142 F.2d 869, but observed:
“Nonetheless, the scope of the permissible inquiry into the propriety of proceeding under either chapter is not susceptible of ready definition solely in terms of the existence or non-existence of public stockholders.” [217 F.2d 246.]
Clearly herein there are presented but two classes of interests: (1) that of the stockholders; (2) that of unsecured creditors. It cannot be too strongly emphasized that neither the company itself nor its unsecured creditors seek a reorganization. A single stockholder and the Securities and Exchange Commission nevertheless intervene to thwart the plan of arrangement submitted by the corporation to its unsecured creditors which would enable those creditors to receive a full 100% payment of their claims.
What is to be effected by a plan of reorganization ? What is there to reorganize?
An anomalous situation arises because if the debtor had moved in the first instance under Chapter 10, it is very doubtful whether in its petition it could have *238met the requirements of Section 530, Title 11 of Chapter 10. In that event it would seem that the provisions of Section 547 of Title 11, Chapter 10, would apply. That section provides that when a petition filed under Chapter 10 discloses that adequate relief could be obtained by the debtor under Chapter 11, an amendment to comply with the requirements of Chapter 11 could be made. See John Hancock Mut. Life Ins. Co. v. Casey, 1 Cir., 141 F.2d 104.
Acceptance of the plan of arrangement is on its face all that the company needs to carry on its affairs. The wage earners who fall among the unsecured creditors, and who are eager to have prompt payment, certainly will suffer delay if proceedings are had under Chapter 10.
In the motion for leave to intervene made by the Securities and Exchange Commission it is alleged that “if the proposed arrangement is confirmed and the proceedings are not dismissed, the interests of investors in this proceeding will be improperly affected.” But there is nothing in the record before this court which sustains that allegation.
The debtor has no funded debts by way of debentures or certificates of indebtedness of any kind — bonds, mortgages, notes or obligations of like character, sold, distributed or in the hands of the general public. So much appears in the affidavit of the president of the debtor. As I have intimated, the proposed plan of arrangement does not seek to modify in any form whatsoever the capital stock of the debtor.
The order under review, if the debtor desires to have the sanction of the Bankruptcy Act, leaves no alternative but to endeavor to comply with the requirements of Chapter 10. Failing that, it is faced with the necessity of endeavoring to settle with its creditors out of court. In doing so it runs the hazard of committing an act of bankruptcy which might énable some creditors to file a petition in ordinary bankruptcy. So liquidation of the debtor would ensue. Chapter 10, as I have stated, is essentially designed to enable a debtor to work out a plan of reorganization. Historically its immediate predecessor was Chapter 77B of the Bankruptcy Act, and that in turn followed the old equity receivership, the outstanding characteristic of which was to seek a plan of reorganization of vested and conflicting interests.
It would seem to be sound common sense to leave the management of the business to the judgment of its officers and directors. There is not the slightest suggestion of the violation of any state law. Indeed if stockholders should determine that there has been bad management or misjudgment or fraud, ample relief is possible under the corporation laws of the State of New York, the domicile of the debtor.
For the foregoing reasons I feel impelled to dissent.