In re Lorraine Castle Apartments Bldg. Corporation, 78007.

• Decision Date: 10 February 1944
• Docket Number: No. 78007.,78007.
• Citation: 55 Am. BR (NS) 792,53 F. Supp. 994
• Parties: In re LORRAINE CASTLE APARTMENTS BLDG. CORPORATION, Inc.
• Court: U.S. District Court — Northern District of Illinois

53 F. Supp. 994

55 Am. BR (NS) 792

In re LORRAINE CASTLE APARTMENTS BLDG. CORPORATION, Inc.

No. 78007.

District Court, N. D. Illinois, E. D.

February 10, 1944.

Joseph B. Lawler and William O. Burns, both of Chicago, Ill., for trustee.

Hummer, Van Ness & Yowell, of Chicago, Ill., for debtor.

William Henning Rubin, of Chicago, Ill., for intervener.

Thomas B. Hart and Edward P. McGuire, both of Chicago, Ill., for Securities and Exchange Commission.

Irving Greenfield, of Chicago, Ill., for bondholders.

CAMPBELL, District Judge.

This matter comes before the Court upon a report of the Special Master recommending the approval of a plan of reorganization filed by the trustee and the disapproval of a plan submitted by the debtor in a proceeding for its reorganization under Chapter X of the Bankruptcy Act, as amended, 11 U.S.C.A. § 501 et seq. On April 30, 1942, debtor filed its petition for reorganization herein which was duly approved as properly filed in good faith, and debtor continued in possession of its property until July 20, 1943 at which time an order was entered appointing as trustee James W. McNichols who qualified as such and, after an investigation into the affairs of the debtor, filed a plan of reorganization on August 31, 1943.

At the request of the Court, the Securities and Exchange Commission filed its notice of appearance herein on July 22, 1943 and since that date has actively participated in the proceedings.

The debtor owns and operates a three-story, English basement, steam-heated, unfurnished apartment building located at 5001 West Monroe Street, Chicago, Illinois. The building was constructed in 1928 and is subject to the lien of a trust deed dated March 17, 1928 securing first mortgage bonds of debtor originally issued in the principal amount of $100,000.

On July 22, 1935 in a proceeding under Section 77B of the Bankruptcy Act, 11 U. S.C.A. § 207, a plan of reorganization of debtor was confirmed which provided for a seven-year extension of the maturity of debtor's outstanding bonds to May 1, 1942, a waiver of interest during the first year of the extended period, and interest at a reduced rate of 3% per annum to maturity and thereafter at 7% per annum.

At the time of the institution of the present proceedings, first mortgage bonds of the debtor were outstanding in the principal sum of $72,500. Unpaid interest on these bonds as of September 1, 1943 amounted to $6,766.67. There are practically no other liabilities of the debtor except current real estate taxes which amount to approximately $2,250 per year.

The debtor's property has been the subject of three appraisals filed in these proceedings. On November 24, 1942, one Ward Farnsworth appraised the property as having a value of $61,000. On May 13, 1943, Appraisal Associates, Inc., filed a report showing a valuation of $73,250. On September 1, 1943, Paul A. Hazard, an appraiser appointed by the Court, filed his report that the present cash market value of debtor's land and building is $75,000. The gross rental income of the property, approved by the Office of Price Administration, for the year ending June 1, 1943 was $14,820, and the net return was approximately $6,600 before provision for bond interest and depreciation. As of September 1, 1943, the trustee had a net cash balance on hand of $11,475.

The capital stock of the debtor is entirely owned or controlled by Angelo Castellani and Margaret Castellani, his wife.

On September 15, 1943, the debtor filed an amended plan of reorganization herein providing in substance that the debtor will raise "from outside sources" the sum of $10,000 which, together with cash in the hands of the trustee, will be used to pay costs and expenses of the proceeding, interest on the first mortgage bonds at the rate of 5% per annum from May 1, 1942, and approximately 20% on the principal of the bonds. Debtor's plan also provides that the unpaid principal of the outstanding bonds is to bear interest at the rate of 5% per annum and to mature five years from the effective date of the plan which "is to become effective as soon as practicable."

The debtor's plan recites that bonds aggregating $52,000 in principal amount have been acquired by "speculators" during the pendency of the proceedings at a cost of approximately $38,000 and that the claims based upon these bonds should be disqualified in computing the majority necessary for acceptance of the plan and also that the participation of these claims in the plan should be limited to the actual consideration paid therefor.

The debtor's plan appears to be unfair in that it requires bondholders to sacrifice a portion of their accrued interest claim and to extend the maturity of their bonds for five years without compensatory treatment. It is also not feasible inasmuch as the principal amount of the first mortgage indebtedness of approximately $58,000 plus a proposed new loan in the amount of $10,000 would represent a total debt...