377 F.2d 99 (1st Cir. 1967), 6729, Schreibman v. Mason

Docket Nº:6729, 6730.
Citation:377 F.2d 99
Party Name:Vigdor SCHREIBMAN, Appellant, v. Marcus D. MASON et al., Appellees. LAS COLINAS, INC., et al., Appellants, v. Marcus D. MASON et al., Appellees.
Case Date:April 26, 1967
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

Page 99

377 F.2d 99 (1st Cir. 1967)

Vigdor SCHREIBMAN, Appellant,


Marcus D. MASON et al., Appellees.

LAS COLINAS, INC., et al., Appellants,


Marcus D. MASON et al., Appellees.

Nos. 6729, 6730.

United States Court of Appeals, First Circuit.

April 26, 1967

Heard Feb. 7, 1967.

Page 100

Vigdor Schreibman, for appellants.

Vicente M. Ydrach, San Juan, P.R., with whom Jose L. Novas and Hartzell, Fernandez & Novas, San Juan, P.R., were on brief, for Jose Menendez Roig, trustee, appellee.

Garrard Harris, San Juan, P.R., with whom Baragano, Trias, Saldana, Harris & Francis, San Juan, P.R., was on brief, for Banco Popular de Puerto Rico, appellee.

Before ALDRICH, Chief Judge, MARIS [*] and McENTEE, Circuit Judges.

McENTEE, Circuit Judge.

These are consolidated appeals from certain orders entered in a bankruptcy proceeding originally brought under Chapter XI of the Bankruptcy Act and later transferred to Chapter X. 1 Two of these appeals are from the order of the district court transferring the proceedings to Chapter X. The pertinent facts leading up to this transfer are as follows. In December 1963 and for some time prior thereto the appellant, Las Colinas, Inc., and its wholly owned subsidiary, Eastern Shore Development Corporation, were actively engaged in developing a large tract of land in Puerto Rico on which they were building a number of houses for sale to the public. Appellant Schreibman is president of both corporations and the majority stockholder in Las Colinas. From the beginning this development was financed in large part by a bank known as Banco Popular de Puerto Rico. As of the latter part of December 1963 this bank held mortgages on the Las Colinas real estate totalling $3,750,000. 2 The actual amount of the indebtedness was very considerably less. At or about that time a controversy broke out between the parties as a result of which the bank refused to advance Las Colinas any more money. Shortly thereafter, construction on the project came to a halt. At that point Las Colinas had eighty-three houses under construction, all of which were near completion. In fact, deposits totalling $194,000 had been made on them by prospective purchasers. Efforts to resolve the controversy

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having failed, in July 1964 the bank brought suit in the Superior Court of Puerto Rico to foreclose these mortgages. 3

Three months after the filing of the foreclosure action, Las Colinas and Eastern Shore (hereinafter the debtors) filed this Chapter XI petition. At this point we think it is pertinent to review briefly the corporate structure and the general financial condition of Las Colinas as of the date of filing of the petition. This corporation has only one class of stock, Class A common, of which there is a total of 1,000 shares issued and outstanding. The stock is held by twenty-seven parties, several of whom are related by blood or through marriage. Appellant Schreibman owns 53%. In addition, there are two classes of debenture bonds outstanding, both unsecured, in a total amount of $436,000. These bonds are held by thirty-one persons, most of whom are also stockholders.

The schedules which accompanied the debtors' Chapter XI petition show debts of approximately $3,602,700 and assets of some $10,567,000. 4 The plan of arrangement filed with the debtors' petition proposes payment of the priority and secured debts as they mature and payment in full of the unsecured creditors. The successful execution of this plan is predicated upon (1) debtors' continued operation of the business; (2) additional financing through the issuance of certificates of indebtedness, which are to have priority over existing obligations; (3) employing the money raised through these certificates to complete the eighty-three houses and (4) using the proceeds from the sale of these houses to pay

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off the certificates and various creditors as well.

This plan was accepted by a majority of the unsecured creditors. Also, it was confirmed by the referee in bankruptcy in January 1965, subject to the requirement that the debtors make a deposit to cover payment of court costs and priorities. 5 Debtors then petitioned for authority to issue certificates of indebtedness up to the amount of some $806,000. The bank objected. In May 1965 the referee denied this petition without prejudice 'there being no specific agency prepared to make such loans.'

The debtors continued in possession, but due principally to lack of adequate financing no real progress toward completing the houses was made during the next few months. 6

In August 1965 a bondholder, who was later joined by several other bondholders, all of whom are appellees, petitioned the court to transfer the proceedings to Chapter X of the Bankruptcy Act alleging that adequate relief could not be obtained under Chapter XI. The court referred this petition to a Special Master 7'to consider, hold hearings, make findings of fact...

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