In re Prudential Outfitting Co. of Delaware

LEARNED HAND, District Judge (after stating the facts as above). [1] I cannot see what standing the receiver has in this proceeding. He is discharged, and I cannot recognize him as having any interest in the proceedings. An affidavit is presented on behalf of the bidder through another attorney, and although the property has been transferred to the reorganized corporation he may perhaps be said [506] to have an interest. However, both the bidder and the reorganized corporation were served with the order and are parties hereto, and I shall accept the attorney for the receiver as representing them for the purposes of the contest, though, strictly speaking, they appear to have allowed the matter to go by default. [2] The case presents a question for which there is, so far as I can learn, no basis in the past precedents of this or any other court. Passing for the moment the matter of compositions, it should be enough to say that a bankruptcy court under no circumstances will, or indeed can, compel creditors to accept an aliquot interest in the assets of the bankrupt under the guise of a sale. It is quite true that Judge Holt did not put his decision in the composition of In re Woodend & Co. (D. C.) 133 Fed. 593, upon this ground, yet in Re J. B. & J. M. Cornell (D. C.) 186 Fed. 859, he refused t& confirm a' bid upon a sale which required creditors to accept a percentage of their claims, payable in the future — a much less drastic provision. Certainly nothing can be drawn to the comfort of the respondents from these two decisions. On the other hand, Judge J. B. McPherson in Re Northampton Portland Cement Co. (D. C.) 185 Fed. 542, refused to approve a “plan of reorganization” having this feature and^ because of it. Just how the matter was presented does not appear, nor that he might not have held other views upon composition. Upon principle the question is clear. Bankruptcy does not change the character of the creditors’ claims, which are measured by, and collectible in, money. It does insure equality of distribution and modify the creditors’ remedies, but there is no shadow of warrant for the idea that an interest in property may be forcibly imposed upon them in place of money. They have the right, as they had before, to have those assets converted into money, collectively instead of separately, and nothing can invade or impair that right, unless it be by statute. It may be tr;ue that in the past, under the guise of sales, this court has compelled creditors to take deferred payments, though I think no contentious cases have got into the books upon that subject, except In re J. B. & J. M. Cornell, supra, which decides against the power. Non-contentious orders are by no means to be taken as safe precedents in such matters. That is, however, not this case, and it must await proper presentation to determine whether upon a public or private sale in bankruptcy this court has power to compel creditors to take future obligations instead of cash. Here the claims are not measured in money, present or future, for all recalcitrant creditors were forced to become stockholders in an enterprise over which they might individually have not the least power, and which they might wholly disapprove. [3] The petitioner asks as part of its relief that the reorganized' corporation be compelled to pay to the petitioner his pro rata share of the assets. Nothing of the sort is possible. [4] The conventional form of reorganization does justice to dis-sentient creditors, and all efforts to avoid or evade it are illegal. Under it a new corporation is formed by those creditors who wish to join the plan, and who assign their claims to it or to their committee. This corporation or committee may then make a cash bid, which [507] it may in part pay by allowing a proportionate credit upon the assigned claims. The dissenting creditors must be paid in cash their own proportion of the bid, which is their inviolate right. They are protected by the power of the court to fix an upset price, aided in the case of bankruptcy by the statute itself. Any admissible plasticity of reorganization lies in the court’s power 'over that feature of the proceedings. In the case at bar the new corporation need not at once turn over the assets to the receiver, but the following course may be adopted: An order may be entered, setting aside the sale as void and directing the new corporation to file an account with the proper referee of the property received by it, together with the proper charges and' credits to the date thereof. After the referee has stated this account, he will cause an appraisal to be made of all the property taken on the basis of the account as stated. He will then advertise the property for sale at auction, and if the new corporation makes a bid it wil-1 be allowed credit1 for that proportion of the bid for which it holds assigned claims. The balance it. must pay to the receiver, for distribution among those creditors whose claims it does not hold by assignment. If the amount of the bid does not equal the proper percentage of the appraisal, the court may still, if it please, confirm the sale under the statute. If another bidder secures the property, the new corporation must deliver to him, and the consideration will be distributed in due course. An order will be entered in accordance with the foregoing.