In re 263 West 38th Street Corporation
| Decision Date | 11 February 1941 |
| Parties | In re 263 WEST 38TH STREET CORPORATION. |
| Court | U.S. District Court — Southern District of New York |
T. C. P. Martin, of New York City, for debtor.
Low & Sokolski, of New York City, for petitioners.
Maass & Davidson, of New York City (Wilbur C. Davidson, of New York City, of counsel), for Baker, Evans & Co., Inc.
Herman N. Finkelstein, of New York City, for Milton M. Blumenthal and Rambee Corporation.
Edmund Burke, Jr., of Washington, D. C., and J. Anthony Panuch, of New York City (John F. Davidson, of New York City, of counsel), for Securities and Exchange Commission.
This is a proceeding for reorganization of the debtor under Chapter X of the National Bankruptcy Act, Title 11 U.S.C.A. § 501, et seq.
The petitioning creditors are owners and holders in the aggregate amount of $9,000 of first mortgage income bonds of the debtor and have interposed an answer praying that the court take jurisdiction and protect the rights of its stockholders.
The debtor is a corporation organized under the laws of the State of New York and is the owner in fee of the land and the 17-story loft building erected thereon, known as 263-271 West 38th Street, Borough of Manhattan, City of New York, in what is known as the "garment centre".
On October 1, 1940, the debtor defaulted in the payment of interest due on the mortgage covering said real property to secure said mortgage bond issue, and also defaulted in the payment of the real estate taxes assessed against said property by the City of New York. Thereupon the president and directors of the Manhattan Company (locally known as the Bank of Manhattan Company) trustee under said trust mortgage, instituted proceedings in the New York Supreme Court, County of New York, to foreclose the same. No receiver has been appointed nor has an application been made for such appointment, the debtor having previously assigned the rents of the premises to the plaintiff therein; no plan of reorganization under any New York State law has been prepared and filed in the New York State courts.
Baker, Evans & Co., Inc., a New York corporation, a holder of $84,000 principal amount of debtor's first mortgage income bonds filed an answer to the petition which, inter alia, challenge the good faith of this proceeding, but upon the hearing waived the opportunity to adduce any testimony, stating that such objection was based upon the prior proceedings pending in the State court and, because it is unreasonable to expect that a plan of reorganization of the debtor can be achieved in this proceeding.
Milton M. Blumenthal a holder of $4,500 in principal amount of first mortgage bonds, and the Rambee Corporation, a holder of $4,000 in principal amount of said bonds, appeared and support the contention of Baker, Evans & Company, Inc.
The Bank of Manhattan Company prays the dismissal of the proceeding in order that it may proceed with its foreclosure action.
The Securities and Exchange Commission has intervened and supports the petition for reorganization.
The real property involved in this proceeding was formerly owned by the Bisjo Realty Corp., which was reorganized under the provisions of former Section 77B, 11 U. S.C.A. § 207, of the National Bankruptcy Act and a plan of reorganization was approved by a judge of this court in 1936.
The Bisjo Realty Corp., had outstanding $832,000 principal amount of first mortgage bonds, a second mortgage, a third mortgage and a fourth mortgage, various unsecured creditors and stock interests.
The approved plan of reorganization eliminated the holders of the fourth mortgage, unsecured creditors and the stockholders.
The holders of the first mortgage bond issue received new first mortgage bonds of the debtor as series "A" bonds in an amount equal to 50% of the first mortgage bonds surrendered and in addition thereto received common stock and voting trust certificates for first preferred stock of the debtor. Second preferred stock of the debtor was issued to the holders of the second and third mortgages. The debtor, in order to raise cash for operating expenses, also issued, as authorized by the plan, first mortgage bonds, series "B" and additional common stock; series "A" and series "B" bonds, for the purpose of this proceeding, may be assumed to be identical. Therefore the present set up is:
First Mortgage Bonds $420,000
First Preferred Stock 7904 Shares
Second Preferred Stock 500 Shares
Common Stock 8320 Shares
In addition to the outstanding bonds and accrued interest thereon at the rate of 6% per annum from April 1, 1940, and the unpaid realty taxes in the sum of $11,175, which became due Oct. 1, 1940, and interest thereon at the rate of 7% per annum, the material obligations of the debtor consist of an indebtedness represented by scrip certificates issued to the holders of bonds in lieu of interest due Oct. 1, 1938, in the sum of $70,120.90, which, of course, fall into the classification of unsecured claims.
This debtor became the owner of the premises 263 West 38th Street on Oct. 1, 1938, and fixed a value on its books for the land and building at $740,990. The property involved at that time was assessed by the City at $910,000. In a certiorari proceeding it has been reduced to $750,000, and in consequence, the debtor is entitled to a rebate of taxes to the extent of $18,000, of which $6,000 has been recently paid on account and the balance, it is expected, will be presently paid.
The assistant trust officer of the Bank of Manhattan Company, under date of January 13, 1941, submitted to petitioners' attorneys a statement from the managing agents of the property showing gross rents per annum amounting to $92,630 (with only one vacancy listed at $720) and concessions amounting to $1,366.68, leaving a balance of $90,543.32. The estimated annual expenses are $36,762.25; taxes $23,000.00, and interest on $420,000 at 6%, $25,200, which leaves a balance of $5,581.07, out of which expenses of administration and...
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