Court Opinion

ID: 9442813
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:00:45.751739+00
Date Added: 2024-06-11T17:29:14.829038
License: Public Domain

SWAN, Circuit Judge
(dissenting).
My brothers’ opinion holds that in Chapter XI proceeding the bankruptcy court has power to authorize a sale of the debtor’s assets only by virtue of section 313(2), 11 U.S.C.A. § 713(2), and that such a sale must be confined to assets which are, in effect, “perishable.” It well may be that a proceeding under Chapter XI cannot be used as a substitute for ordinary bankruptcy where initially the only object of the arrangement is liquidation and distribution of the debtor’s assets.1 This is not such a case. No one doubts that the original plan of arrangement satisfied the requirements of Chapter XI or that it was offered in good faith. The question presented is whether a bankruptcy court may, after an initial plan has proved unworkable, order the sale of the debtor’s assets and distribute the proceeds pursuant to an arrangement under Chapter XI. In my opinion the provisions of Chapter XI are broad enough to permit it to do so. In section 306(1), 11 *857U.S.C.A. § 706(1), “arrangement” is defined to include “any plan of a debtor for the settlement, satisfaction, or extension of the time of payment of his unsecured debts, upon any terms”. The court “may” authorize the sale of “any property of the debtor * * * upon such terms and conditions as the court may approve”. Section 313(2), 11 U.S.C.A. § 713(2). The arrangement “may” include provisions for the continuation of the debtor’s business or “any other appropriate provisions not inconsistent with this chapter.” Section 357(5) and (8), 11 U.S.C.A. § 757(5) and (8). In sharp contrast with the grants of permissive authority which these sections vest in the court, section 356, 11 U.S.C.A. § 756, is mandatory: the arrangement “shall include provisions modifying or altering the rights of unsecured creditors”. The modified arrangement, which the court confirmed, divided the creditors into three classes, provided payment in full for two of the classes and pro rata partial payment for the third class, and proposed a sale of the debtor’s assets to obtain the funds necessary to carry out the arrangement. In my opinion the proposed alteration of the rights of the third class is within section 357(1) and the proposal to raise the necessary funds by a sale is a permissible provision within section 357(8). My brothers suggest that the confirmed arrangement made no change in the rights of the unsecured creditors as between merchandise creditors and note-holder creditors, since the merchandise creditors would be entitled in ordinary bankruptcy to priority over the note-holders (stockholders) listed in class three. I am not convinced that the evidence in the record sustains this conclusion. But passing this, I can see no basis for thinking that the merchandise creditors would in bankruptcy proceedings be entitled to priority over the salary claims held by three of the listed creditors. Such priority as the plan gives the merchandise creditors over the salary claims is by virtue of § 362, 11 U.S.C.A. § 762.
In neither of the cases cited by my brothers for the proposition that the power of sale is confined to perishable assets was the sale made pursuant to a plan of reorganization. Authority for a sale under a Chapter X plan is found in section 216 (10), 11 U.S.C.A. § 616(10). Because no similar section appears in Chapter XI, my brothers think that authority is lacking to order a sale of the debtor’s assets pursuant to a plan of arrangement. If a plan of arrangement which alters the rights of one class of unsecured creditors and proposes a sale to obtain the funds necessary to carry it out, is confirmed by the court, as it was in the case at bar, I cannot believe that the court lacks power to authorize the sale.2 Nor am I alarmed by the absence of a provision such as is found in section 216(10), with respect to “a fair upset price.” The appointment of an appraiser is within the court’s discretion. Section 333, 11 U.S.C.A. § 733. If the power to order a sale is not to be found in section 313(2), of which I am not convinced, I would invoke section 2, sub. a(7), 11 U.S. C.A. § 11, sub. a(7), which invests courts of bankruptcy with power to “Cause the estates of bankrupts to be collected, reduced to money and distributed,” 3 or would imply the power as one necessary to carry out a confirmed plan of arrangement. I would affirm the order on appeal.

. Such was the situation in Matter of Western Steel & Equipment Corp. (Ref. Oregon), 45 Am.Bankr.Rep.,N.S., 361. Compare In re Magazine Associates, Inc., D.C., S.D.N.Y., 46 F.Supp. 808 ; 8 Collier on Bankruptcy, 14th ed., 1950 Supp., p. 7 n. 19.

. It is, moreover, difficult for me to understand why the assets of the debtor, which consist of plant and equipment and an oil and gas lease are not equally as perishable as those in In re V. Loewer’s Gambrinus Brewery Co., Inc., 2 Cir., 141 F.2d 747, where they consisted of vats, kettles and other brewery equipment.

. See 8 Collier on Bankruptcy, 14th ed., p. 171.