Court Opinion

ID: 6864113
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:52:22.917298+00
Date Added: 2024-06-11T16:05:17.559529
License: Public Domain

MANTON, Circuit Judge
(dissenting).
Prudence Bonds Corporation, the debt- or, is a New York corporation organized under the Stock Corporation Law. When the petition in bankruptcy was filed, it had outstanding eighteen issues of its bonds in a principal amount aggregating over $50,000,000, and fifty-four issues of participation certificates in an aggregate principal amount of over $50,000,000. The Chemical Bank & Trust Company is the successor trustee under a trust agreement, dated October 1, 1928, securing the issue of bonds of the debtor known as first mortgage-collateral bonds, fifteenth series. There are outstanding and secured by this trust agreement, bonds in an aggregate principal amount of $4,650,700, which are valid and subsisting obligations of the debtor in the hands of persons and corporations who are holders for value. The fifteenth series bonds were secured by collateral, in the form of bonds and mortgages upon real estate, pledged with the appellant as successor trustee. The bonds are guaranteed as to payment of principal and interest by the Prudence Company, Inc. Both debtor and guarantor are in default in payment of interest on the fifteenth series bonds from November 1, 1933. These defaults continue except for certain partial payments which have been made on account of installments of interest which became due November 1, 1933. Under the terms of the trust agreement, the principal of all the outstanding bonds is declared to be due and payable, and it has not been paid by the debtor or its guarantor.
The debtor filed its petition in .this proceeding, under the provisions of section 77B of the Bankruptcy Act (11 USCA § 207), on June 29, 1934. On October 11, 1934, the appellant intervened in the proceeding. November 27, 1934, on the petition of the debtor, the appellant was directed to show cause, as well as all creditors and stockholders of the debtor, why a plan of reorganization with respect to an issue of bonds of the debtor “known as its First Mortgage-Collateral Bonds, Fifteenth Series,” should not be heard and considered, and why an order should not be made and entered providing that the plan was “duly proposed in accordance with the requirements of section 77B of the National Bankruptcy Act.” After a hearing, an order was entered reciting that the plan was so duly proposed in accordance with section 77B of the Bankruptcy Act. The order referred the plan of reorganization to a special master for consideration of objections thereto. When this appeal was taken, the required consents to the amended plan had not been obtained, and the special master had not made a report.
The question presented by this appeal is whether the court erred in entering the order that the plan was “duly proposed in accordance with the requirements of section 77B of the National Bankruptcy Act.”
The appellant argues that the National Bankruptcy Act does not authorize or contemplate several separate and independent plans of reorganization which may be separately considered, confirmed, and adopted. It contends that the proceeding by a separate plan of reorganization as to this part of the debtor’s property only, namely, the fifteenth series bonds, entailing a modification of the contract rights of the bondholders, so carried -out as planned, would be invalid and unauthorized, and the validity of the modified bonds and their marketability would be seriously impaired.
Nowhere in the provisions of section 77B is there any language which sustains the claim that there is an authorization of several separate plans of reorganization. Wherever plans of reorganization are referred to in the several sections, the language is definite, indicating that the machinery and procedure set up thereby was intended to provide for one plan of reorganization — a single comprehensive plan. Subdivision (a), 11 USCA § 207 (a), authorizing a corporation to file a petition, refers to the right of the debtor to act if “it desires to effect a plan of reorganization,” and throughout this *211section one plan of reorganization is contemplated and referred to. Subdivisions (f), (g), and (h), 11 USCA § 207 (f, g, h), dealing with the winding up of a reorganization proceeding and the confirmation and adoption of a reorganization plan, are equally clear in referring to but one plan. Subdivision (h), 11 USCA § 207 (h), provides that “Upon the termination of the proceedings a final decree shall be entered discharging the trustee or trustees, if any, making such provisions as may be equitable, by way of injunction or otherwise, and closing the case.” Throughout the language contemplates but one plan, one approval by the creditors and the court, and one proceeding for final disposition. Subdivision (b) (10), 11 USCA § 207 (b) (10), provides that the plan may deal with all or any part of the property of the debt- or. This unquestionably was not intended to permit dealing with different parts of the debtor’s property in different plans. It must be read in conjunction with subdivision (b) (1), 11 USCA § 207 (b) (1), in which case its meaning becomes clear. A plan need not modify the rights of creditors generally, but may be limited to a particular class of creditors and the rights of other classes remain undisturbed, and such plan may deal with only a part of the debtor’s property. But this is not permitting the property of the debtor to be dealt with by several separate plans each dealing with parts of the property. The Report of the House Judiciary Committee, adopted by the Senate Judiciary Committee, indicates that but a single and comprehensive plan of reorganization was contemplated.1
Subdivision (b) specifies conditions which a plan of reorganization within the meaning of section 77B must provide and others which it may provide. Some of those which must be provided in a plan can only be provided for in a general plan. Subdivision (b) (3), 11 USCA § 207 (b) (3), requires that the plan shall provide for the payment in cash of all costs of administration and other allowances made by the court. This could not be provided for in several separate plans, as the amounts could not be determined until all the other proposed separate plans have been confirmed or are ready for confirmation. Subdivision (b) (7), 11 USCA § 207 (b) (7), provides that the plan shall, in case any creditor or stockholder or class thereof shall not be affected by the plan, contain provisions with respect to unaffected creditors or stockholders as may be appropriate. To comply with this requirement of the statute, a separate plan must contain the provisions which are to be made with respect to all creditors. This could not be done if separate plans were to be confirmed at different times. Subdivision (b) (7) clearly contemplated a single general plan.
Subdivision (b) (8), 11 USCA § 207 (b) (8), provides that the plan shall specify which claims are to be paid in cash in full. A separate plan proposed for confirmation prior to the confirmation of other proposed plans could not contain such a specification, because until a general plan is promulgated, the amount of claims which will have to be paid in cash cannot be ascertained. Subdivision (b) (9), 11 USCA § 207 (b) (9), provides that a plan shall provide adequate means for the execution of the plan, including the satisfaction and modification of liens, indentures, or other similar instruments. This language is general and inclusive. It would seem to mean that every plan, must show to the creditors what changes and modifications are being made in the rights of all creditors affected by the reorganization. Creditors of one class have an interest in knowing what treatment is. accorded to another class. Their rights might well be affected. Bankruptcy con*212templates an equitable distribution of the bankrupt’s property, and the same principle underlies the procedure in section 77B.
Subdivision (d), 11 USCA § 207 (d), indicates the need of a general plan. This subdivision requires that, before a plan can be submitted by a creditor, it must have been approved by creditors constituting not less than 25 per cent, in amount of any class of creditors and not less than 10 per cent, in amount of all claims against the debtor. If several plans were to be proposed for one debtor, a creditor cannot submit an alternative plan without the approval required by this subdivision including that of at least 10 per cent, of all the claims against the debt- or.
From the language- employed, it is inconceivable that Congress intended that here seventy-two groups might propose seventy-two plans and that each should canvass for consent from holders of other separate groups. A plan of reorganization which 25 per cent, of any class of creditors might propose should be of such a general character as to warrant the further requirement of the consent of 10 per cent, of' all claims against the debtor.
Again, subdivision (c), clause (8), 11 USCA § 207 (c) (8), provides that, if a plan of reorganization is not proposed or accepted within such a reasonable time as the judge may fix or, if proposed and accepted, is not confirmed, such period may be extended or the proceeding dismissed or the judge may direct that the estate be liquidated. It is impossible that there should be reorganization of part of the debtor’s property and liquidation of the balance. Again, it was not contemplated that there should be some seventy-two hearings, objections, and reports, and separate orders confirming seventy-two separate plans of reorganization of one corporation.
Moreover, an examination of the plan proposed here shows no necessity for a separate plan of reorganization for each of the obligations of this debtor. Full protection can be accorded as to any part of the debtor’s property by appropriate orders entered therefor, without separate plans of reorganization being proposed and approved.
The order should be reversed.

 C. C. H. Bankruptcy, p. 857 et seq. “This bill if enacted will result in reducing the cost of reorganizing corporations, entitled to its benefits in the following ways, provided, of course, a plan of reorganization is proposed and accepted. * * *” (857.)
“The means specified in subdivision (b) for carrying out a plan includes as one of the means the amendment of the charter of the debtor.” (858.)
“The plan when confirmed and carried out will set forth the capitalization of the reorganized company and there must be no uncertainty as to its finality.” (863.)
Report of House Judiciary Committee was adopted by the Senate Judiciary Committee. The report, for the most part, states the provisions of the bill substantially as enacted in the form of section 77B.