In re General Stores Corporation

• Decision Date: 24 January 1955
• Citation: 129 F. Supp. 801
• Parties: In the Matter of Proceedings for an Arrangement under Chapter XI of the Bankruptcy Act of GENERAL STORES CORPORATION, Debtor.
• Court: U.S. District Court — Southern District of New York

129 F. Supp. 801

In the Matter of Proceedings for an Arrangement under Chapter XI of the Bankruptcy Act of GENERAL STORES CORPORATION, Debtor.

United States District Court, S. D. New York.

January 24, 1955.

Otterbourg, Steindler, Houston & Rosen, New York City, for debtor, Aaron Rosen, Frederic P. Houston, Marks F. Paskes, New York City, of counsel.

Reich, Peller, Guadagno & Caine, New York City, for Max Shlensky, petitioner, A. Alan Reich, New York City, of counsel.

Blumberg, Singer, Heppen & Blumenthal, New York City, for Creditors' Committee.

George Zolotar, New York City, for Securities and Exchange Commission.

DIMOCK, District Judge.

On October 18, 1954, General Stores Corporation, the Debtor, filed a petition in this court under section 322 of the Bankruptcy Act, 11 U.S.C. § 722, proposing an arrangement under Chapter XI of the Act. A stockholder, Max Shlensky, has moved by order to show cause under section 328 of the Act, 11 U.S.C. § 728, for a dismissal of the proceedings unless the petition be amended so as to comply with Chapter X. The Securities and Exchange Commission has moved for leave to intervene and to support a motion which it has filed for the same relief as asked by the stockholder.

The motion of the Securities and Exchange Commission for leave to intervene is granted. Its motion for dismissal of the proceedings unless the petition be amended so as to comply with Chapter X will be considered with that of the stockholder.

The factors which should control the decision of the question have been discussed by the Supreme Court in Securities and Exchange Commission v. U. S. Realty & Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293. There the court stated, 310 U.S. at page 447, 60 S. Ct. at page 1049, that "the two chapters were specifically devised to afford different procedures, the one adapted to the reorganization of corporations with complicated debt structures and many stockholders, the other to composition of debts of small individual business and corporations with few stockholders". In that case proceedings under Chapter XI were dismissed. The debtor there had outstanding 900,000 shares of stock listed on the New York Stock Exchange and held by 7,000 stockholders. Its assets were listed at about $7,000,000 and its liabilities at about $5,000,000.

In a more recent case the Court of Appeals for this Circuit has declined to interfere with a refusal by the district court to order that proceedings under Chapter XI be redirected under Chapter X. Matter of Transvision, Inc., 2 Cir., 217 F.2d 243. In the Transvision case the debtor had outstanding 385,000 shares of common stock and 1773½ shares of preferred. All were in the hands of management interests except 135,000 shares of common held by 425 investors. It was not listed on any exchange. The debtor's liabilities were about $700,000 and its assets about $1,000,000.

In the instant case the Debtor has outstanding 2,232,422 shares of common stock listed on the American Stock Exchange and held by 7,000 stockholders. It is in part listed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 15 U.S.C.A. § 77a et seq. The Debtor's liabilities are listed at about $4,000,000 and its assets at about $5,000,000.

The proposed arrangement would have compulsory effect only on the unsecured creditors who are entitled to no priority. They would receive 100% of their claims, 20% on confirmation of the plan and 20% annually thereafter.

The Debtor, now known as General Stores Corporation, was formerly D. A. Schulte, Inc. The stock was in part issued pursuant to a plan of reorganization pursuant to section 77B of the Bankruptcy Act 11 U.S.C.A. § 207 which was consummated as of October 31, 1940. The balance was later sold by the debtor at prices ranging from $1.375 to $1.60 per share.

The Debtor was organized in 1915 and throughout most of its history operated a chain of stores for the sale of tobacco and accessory products as well as other sundry items. After the 77B reorganization proceeding and during the war years the Debtor enjoyed a profitable operation due principally to wartime scarcities. In the post-war period, however, the Debtor's volume began to fall. In addition, the Debtor's profit margin, already low with respect to most of its products, became narrower as prices declined and costs rose. Attempts at modernization of existing units failed materially to stem continuing losses. A sale of the 400,000 shares of common stock in 1951 was accompanied by a change in the management of the enterprise. It was announced at that time that the $600,000 proceeds of the stock sale would be used to convert a number of the existing units to candy or food and drink operations in order to improve profit margins and thus reduce the company's losses. After consummation of the stock sale, however, further studies of the program were made and, upon discovery that costs of conversion would be too great, the program was abandoned and the proceeds of the sale were used for general corporate purposes. During the four years and five months ended March 31, 1953 the Debtor sustained aggregate losses exceeding $2,700,000. With the continuance of losses in 1953 and 1954¹ the Debtor embarked upon a program of discontinuing the operation of its Schulte-type stores.²

In August 1953, the Debtor purchased all of the outstanding capital stock of Stineway Drug Company. Stineway operates a chain of 23 retail stores in the Chicago area engaged in selling drugs, cosmetics, tobacco products, drug sundries, candy and liquor; all but one of the stores also operate fountains and luncheonettes. In addition, Stineway operates a public cafeteria and sells merchandise to 12 independent stores in the Chicago area known as Stineway System Stores. The purchase price of this stock was $1,220,320.50, $800,000 of which was paid by the Debtor at the closing and the balance was to be paid on April 15, 1954. Of the $800,000 down payment, $365,000 was ultimately borrowed by the Debtor...