In re McCrory Stores Corporation

• Decision Date: 30 September 1935
• Citation: 12 F. Supp. 267
• Parties: In re McCRORY STORES CORPORATION.
• Court: U.S. District Court — Southern District of New York

12 F. Supp. 267

In re McCRORY STORES CORPORATION.

District Court, S. D. New York.

September 30, 1935.

Szold & Brandwen, of New York City, for common stockholders' protective committee.

Chadbourne, Hunt, Jaeckel & Brown, of New York City (Howard H. Brown and Alfred H. Phillips, both of New York City, of counsel), for preferred stockholders' committee.

Sullivan & Cromwell, of New York City (Wilbur L. Cummings and De Lano Andrews, both of New York City, of counsel), for United Stores Corporation.

Breed, Abbott & Morgan, of New York City (Charles H. Tuttle, of New York City, of counsel), for creditors advisory committee of McCrory Stores Corporation.

Beekman, Bogue, Leake, Stephens & Black, of New York City, for common stockholders' committee.

Herman L. Weisman, of New York City, for independent debentureholders' committee of McCrory Stores Corporation.

Pleasants & Sperry, of New York City (Samuel A. Pleasants, of New York City, of counsel), for Walker and others, trustees.

Cotton, Franklin, Wright & Gordon, of New York City (James D. Wise and Daniel James, both of New York City, of counsel), for Southeastern Investment Trust, Inc.

PATTERSON, District Judge.

The McCrory Stores Corporation operated a large number of retail stores. It filed a petition in bankruptcy on January 14, 1933, since which time the business has been conducted by the Irving Trust Company, first as receiver and later as trustee. On July 5, 1934, the company filed a petition for reorganization. In due course a plan of reorganization was proposed. Objections to the plan were interposed, and the matter was sent to a special master to hear and report. The master has taken voluminous testimony and has reported that in his opinion the plan discriminates unfairly in favor of one of the creditors, the United Stores Corporation. The case is here on the master's report.

The parties interested in the estate are holders of debentures in the amount of $4,552,000; merchandise and other general creditors in the amount of $3,200,000; the United Stores Corporation, as assignee of numerous landlords' claims, filed for $29,000,000 and said by those advocating the plan to have an allowable value of at least $7,000,000; holders of preferred stock of $5,000,000 par value; and holders of 443,496 shares of common stock without par value. The plan has the support of nearly all the merchandise creditors, who lay stress on the importance of a speedy reorganization. It has the support also of the greater part of the debenture holders, the United, and most of the preferred stockholders. Opinion of common stockholders is divided, the larger part being in opposition.

Under the proposed plan, merchandise and other general creditors are to receive full payment of their claims in cash, without interest; debenture holders have the option to take payment in full in cash without interest, or to take new debentures of the same face amount together with shares of common stock, the debentures being underwritten by responsible bankers; holders of preferred stock will take new preferred stock share for share, without back dividends, but with the dividend rate for the future raised ½ per cent.; holders of common stock will have 2/3 of a share of new common for each share of old, with the right to subscribe to one share of new common at $6.50.

The United is to turn in the landlords' claims at a figure of $3,130,966, said to represent cost, and made up of the following: Aggregate price paid to the assigning landlords in cash $2,733,710; commission to Hedden $215,000; fees of engineers and lawyers $100,000; other expenses $18,983; interest $63,273. For $2,453,498 of this cost the United is to receive 444,840 shares of new common, being 398,148 shares at the rate of $5.40 a share and 46,692 shares at the rate of $6.50 a share. The balance of $677,468 is to be paid to the United in cash. The United is also to underwrite without charge the offering of the new common shares to the common stockholders at $6.50 a share.

Under such a plan, recapitalization will be $4,552,000 debentures, $5,000,000 preferred stock, and 1,200,000 shares of common stock. The company will have adequate working capital, and from present indications should earn at the rate of 52 cents a share on the new common stock. The master found the plan to be feasible. I am of the same opinion.

The proof indicates that the price of $6.50 a share for the new common, both for subscription by the old stockholders and for conversion of landlords' claims into stock, is a fair and reasonable figure. The objection that the United should not receive any stock in place of its present claims, no matter on what basis, is too sweeping. In the general run of reorganizations, whether in equity receivership or under the new act, creditors relinquish claims and take new stock. It does not appear that any other group of creditors wants stock instead of the cash provided for them in the plan. And it is plain that if a sound reorganization is to be accomplished, a large number of new common shares must be issued, either for sale to bring in new cash or to discharge old claims, or for both purposes. But in behalf of common stockholders, the point of pressure is that under this plan the United is to receive, in new common stock and in cash, an amount out of proportion to the value of the claims that it now holds against the...