In re Central Forging Co., 9822.

• Decision Date: 15 April 1941
• Docket Number: No. 9822.,9822.
• Citation: 38 F. Supp. 18
• Parties: In re CENTRAL FORGING CO.
• Court: U.S. District Court — Western District of Pennsylvania

38 F. Supp. 18

In re CENTRAL FORGING CO.

No. 9822.

District Court, M. D. Pennsylvania.

April 15, 1941.

F. Brewster Wickersham, of Harrisburg, Pa., for Bondholders' Protective Committee.

Hervey B. Smith and E. Eugene Eves, both of Bloomsburg, Pa., for the Beckleys.

Walter H. Compton, Trustee, of Harrisburg, Pa., and Clair Groover, of Lewisburg, Pa., for the trustee.

Harry S. Knight, of Sunbury, Pa., for Owners of Maxi Mfg. Co.

JOHNSON, District Judge.

January 8, 1941, the trustee filed a plan of reorganization in the above proceedings, proposing the merger of the above debtor with the Maxi Manufacturing Company. Pursuant to order of court and notice duly given, hearings on the plan and objections were heard by the court on January 28, 1941, February 8, 1941, and February 24, 1941. Exceptions to the plan were filed by the Bondholders' Protective Committee, and by the Beckleys, unsecured creditors and bondholders. Now before the court is the question whether the trustee's plan of reorganization is fair and equitable, and feasible, and meets the requirements of section 216 of the Bankruptcy Act, 11 U.S.C.A. § 616.

At the arguments before the court, only the exceptions of the Bondholders Committee were argued, and they will be considered in the order made. Counsel for the Beckleys have stated that these exceptions include the substance of the exceptions filed by the Beckleys.

First, the bondholders object to paragraph 3 of the trustee's plan, which provides: "It is proposed that all accrued interest due to all creditors and bondholders be abated and therefore interest is not capitalized or calculated on any indebtedness."

Interest now due the bondholders amounts to almost $40,000. Interest items due others total about $12,000. The trustee explained that interest on all items was dropped in the plan in an effort to scale down the indebtedness of the company and its inflated values prior to these proceedings in the Federal courts, and that with that end in view it seemed a fair proposition. Notes of testimony, page 14. From all the facts that have come to the attention of the court it is essential that the obligations of the debtor be scaled down to a point where the total indebtedness of the company is fairly backed by the actual value of the company's assets. If all obligations now owed by this debtor were preserved on a 100% basis, then the debtor might as well be liquidated now, for it could have no hope of anything but inflation and insolvency. Even though the bondholders represent the class whose rights first must be protected, this does not mean that a plan of reorganization, to be fair and equitable, and feasible, must preserve all those rights 100% or even preserve all proportionately. It means that their rights must be so preserved that, if the reorganized company succeeds and profits, the first fruits of that success or profit will go to the bondholders, or if the reorganized company fails to succeed, the bondholders' contribution will be protected first. In the determination of what is fair and equitable, and feasible, the facts of each case must be considered, and cases which bear a superficial similarity may not present the same problems at all.

Secondly, the bondholders object to paragraph 4 of the trustee's plan, which provides: "* * * It is proposed to transfer all the assets of the Central Forging Company to the Maxi Manufacturing Company and change the name of Maxi Manufacturing Company to the Catawissa Valve and Fittings Company."

The bondholders claim that the debtor represents an asset worth $63,561.48, while the Maxi represents an asset of only $14,734.35. Treating the first item as the contribution of the debtor's bondholders, the latter then insist they should have returns provided for them four times as great as those provided to the present owners of the Maxi Company. This does not follow. What each of these companies is contributing is not measured alone in dollars and cents. According to the bondholders the debtor is contributing an asset worth more than $60,000. As the trustee points out, this figure is high, because, for one thing, it does not take into consideration the reorganization expenses incurred by the trustee. Furthermore, the debtor is contributing an insolvent corporation, a corporation with no credit in the business world, with dilapidated buildings and equipment unable to pass inspection by the Federal government, a corporation which needs certain patents, the ownership of which is in dispute between Fred Long of the Maxi Company and the debtor, and for which royalties would have to be paid if the two companies operate separately. The Maxi Company is...