In re Los Angeles Lumber Products Co., 8841

• Citation: 100 F.2d 963
• Decision Date: 09 February 1939
• Docket Number: No. 8841,8951.,8841
• Parties: In re LOS ANGELES LUMBER PRODUCTS CO., Limited. CASE et al. v. LOS ANGELES LUMBER PRODUCTS CO., Limited.
• Court: U.S. Court of Appeals — Ninth Circuit

100 F.2d 963 (1939)

In re LOS ANGELES LUMBER PRODUCTS CO., Limited CASE et al. v. LOS ANGELES LUMBER PRODUCTS CO., Limited.

Nos. 8841, 8951.

Circuit Court of Appeals, Ninth Circuit.

January 12, 1939.

Rehearing Denied February 9, 1939.

Thomas K. Case, Clarke & Bowker, and Robert M. Clarke, all of Los Angeles, Cal., for appellants.

Faries & McDowell and David R. Faries, all of Los Angeles, Cal. (J. Clifford Argue, of Los Angeles, Cal., of counsel), and Gibson, Dunn & Crutcher, J. C. Macfarland, and Stuart L. Lapp, all of Los Angeles, Cal. (Frederic H. Sturdy, of Los Angeles, Cal., of counsel), for appellee.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

Two appeals are here involved, one from an interlocutory order and the other from a final order confirming a plan of reorganization in a proceeding under § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. The appellants are minority bondholders.

The record contains a statement of evidence and proceedings on the hearing of the proposed plan, but concededly it is partial and incomplete. Accordingly, the appeal must be considered as one taken on the judgment roll alone. In the absence of the complete record appellants have stipulated that "they intend to raise questions of substantive law only; that they will not attack the findings of the trial court on the ground that they are unsupported by evidence * * *."

The debtor is a holding corporation owning all the capital stock, except directors' qualifying shares, of six subsidiary corporations. Three of the subsidiaries are without assets. Two have assets of little value, and under the plan these are to be sold and dissolution of the five subsidiaries effected.

The remaining subsidiary, Los Angeles Shipbuilding and Drydock Company, has substantial assets. This corporation builds and repairs merchant vessels and small naval craft in its yards located on sixty-eight acres of leased tide land at Los Angeles Harbor. At present its activities are confined largely to the repair of vessels, although during the world war it had carried on an extensive program of ship construction. During its busiest years it employed large numbers of men and did a gross volume of business running into the millions. After the demand for new bottoms declined its activities materially decreased.

In 1924 the debtor issued certain collateral trust bonds to mature in twenty years, the issue being secured by the hypothecation of all the capital stock of the debtor's subsidiaries and by a trust deed lien on all their fixed assets. There are presently outstanding of this bond issue $2,565,500 face value, interest upon which has been delinquent since February 1, 1929.

Other than the lien of these bonds, the subsidiary Shipbuilding Company has only current debts of small amount which under the reorganization plan will be paid in the ordinary course of business. Its fixed assets were found to have a value of $430,000 and it has current assets, including cash, inventory and accounts receivable, not subject to the lien of the bonds, of the value of $400,000. The total value of all the assets of this subsidiary is $830,000. The leasehold on which the plant is situated was found to have no realizable value for creditors in the event of liquidation.

The debtor has outstanding capital stock consisting of 57,065.65 shares of Class A and 5,112 shares of Class B stock of no par value. In 1930 certain of the debtor's stockholders contributed $400,000 to its capital, this new money being apparently turned over to the subsidiary Shipbuilding Company for use as working capital. Coincident therewith the trust indenture securing the bonds was amended with the consent of those holding 97% of these obligations. The amendment effected a reduction in the interest rate of the bonds and further provided that the interest was thereafter to be paid only out of earnings. The effect of this modification of the indenture was that the lien cannot be foreclosed until the maturity of the bonds in 1944. The court found that the amendment was binding on all bondholders regardless of their consent.

In January, 1938 the debtor petitioned for reorganization under § 77B and proposed a plan which the court, with some modifications, approved. The approved plan involves the organization of a new corporation to which is to be transferred all the assets of the subsidiary Shipbuilding Company, free and clear of liens. The capital stock of the new corporation will consist of 1,000,000 shares of the par value of one dollar each, divided into Class A and Class B stock, all shares having equal voting rights. The Class A stock is preferred upon liquidation to the amount of its par value, and has preference to the extent of the payment of a 5% annual dividend, if earned. Dividends are not cumulative.

The bondholders are to receive 641,375 shares of the Class A stock, to be divided pro rata among them on the basis of 250 shares for each $1,000 bond. The balance of the Class A stock, amounting to 170,000 shares, is to be sold to furnish additional working capital. The common or Class B stock, amounting to 188,625 shares, is to be issued to the holders of the present Class A stock of the debtor corporation. The holders of the common shares are entitled to receive in any fiscal year, after a dividend of 5% for such year has been paid on the preferred shares, dividends at the rate of 5% on the par value of such common shares, when and as declared out of any funds available for the declaration of dividends. Any further dividends paid during any such year are to be distributed pro rata among the preferred and common shareholders. On liquidation or dissolution, after the holders of the preferred stock have been paid full par value, the holders of the common shares are entitled to receive the par value thereof; and any other funds or property available for distribution are to be distributed ratably among all stockholders.

A representative of the bondholders is to be named as a director of the new corporation, which will have seven directors, the remaining membership of the board to consist of members of the debtor's present board. An election of directors for the new corporation under the reorganized setup is to be held within ninety days, under the supervision of the court, and the debtor corporation and its officers and directors are to remain...