Court Opinion

ID: 8796725
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:13:40.24659+00
Date Added: 2024-06-11T17:03:40.038624
License: Public Domain

W( ILVERTON, District Judge
(after stating the facts as above). Three points are advanced against the regularity and legality of the adjudication;
(1) That (he bankruptcy proceedings were not authorized by the requisite, stockholders of the corporation.
(2) That the resolution of the board of directors does not meet the requirements of section 3, subd. 5, of the Bankruptcy Act.
(31 That S. A. Moss, being the owner of all the stock, and conducting (he business of the corporation as his own, caused the proceedings in bankruptcy to be instituted to hinder, delay, and defraud the petitioner, by having her attachment dissolved.
[ 1 ] The first point is predicated upon a statute of California which inhibits any sale, assignment, transfer, or conveyance of the business, franchise, and property, as a whole, of any corporation of the state, unless with the consent of the stockholders thereof holding of record at least two-thirds of the issued capital stock of the concern. Section 361a, Civil Code of California. We think a sufficient answer thereto is that (he law looks through mere form to the substance of things; and when it is disclosed, as it is by the petitioner’s petition, *752that S. A. Moss is practically the owner of the entire capital stock of the bankrupt corporation, and that authority was- given by the board! of directors, of which. Moss is one,. for making the assignment in bankruptcy, it would seem that a mere formal meeting of the stockholders, and a recording of their assent as such to the assignment, could add nothing to the authority given by the directors. In either event, the entire stock practically is represented through Moss, and whether he recorded his consent to the assignment as a stockholder or as a director could make no practical difference. We know that the holders of more than two-thirds of the capital stock have given their consent to the assignment, and this, for all practical purposes, is sufficient.
[2] The second point is based upon the idea that the resolution of the board of directors should have authorized, in strict conformity with section 3, subd. 5, an admission in writing on the part of the corporation bankrupt of its inability to pay its debts, and its willingness to be adjudged a bankrupt on that ground, as it is insisted that that is the only authority by statute for adjudication upon a voluntary petition. Section 4a of the Bankruptcy Act provides that:
“Any person, except a municipal, railroad, insurance or banking corporation, shall be entitled to the benefits of this act as a voluntary bankrupt.”
This extends to a corporation of the kind of the present bankrupt the same privilege of becoming a voluntary bankrupt as' to an individual, and there exists no good reason why it may not become such a bankrupt in the same way. It is only necessary for such a petitioner, praying adjudication, that he show that he owes debts which he is unable to pay in full, and that he is willing to surrender his property for the benefit of his creditors. Hughes, Fed. Procedure (2d Ed.) 99, 100. The allegation or admission is practically the same in either event, but the procedure is different. In the one case, the admission constitutes an act of bankruptcy, and the creditors, basing their petition upon the act, proceed as if the case were one of involuntary bankruptcy; while, in the other,,the action is purely voluntary, and the bankrupt proceeds on his own motion and initiative. Now, the resolution of the board of directors clearly authorized the cashier, treasurer, and bookkeeper to prosecute in the name of the corporation a petition in bankruptcy to final discharge, which was amply sufficient to authorize the bankrupt to proceed as a voluntary bankrupt to obtain a discharge from its debts in the bankruptcy court. The second contention is therefore not maintainable.
[3] Answering the third point, it is only necessary to say that the Bankruptcy Act recognizes the right of the bankrupt to make a voluntary assignment of his property, with the purpose of avoiding attachments, and thereby securing an equal distribution of his property among all his creditors, and it cannot be predicated of such a proceeding that its purpose is to defraud the attaching creditors.
The order of the District Court in sustaining the demurrer and dismissing the petition for vacation of the adjudication will bp affirmed.