In re Polycast Corporation
| Decision Date | 17 July 1968 |
| Docket Number | No. 33718.,33718. |
| Citation | 289 F. Supp. 712 |
| Court | U.S. District Court — District of Connecticut |
| Parties | In the Matter of the POLYCAST CORPORATION, Debtor. |
John W. Barnett, of Wiggin & Dana, New Haven, Conn., for applicants B. Edwin Sackett, trustee, and Wiggin & Dana, New Haven, Conn., attorneys for trustee.
Samuel Gruber, of Gruber & Turkel, Stamford, Conn., for applicant Gruber & Turkel, attorneys for The Polycast Corporation, debtor.
Elwood Wiendieck, Greenwich, Conn., pro se for applicant Wiendieck & Co., accountants for trustee.
Edwin H. Nordlinger, New York City, for Securities and Exchange Commission.
In this Chapter X proceeding for the reorganization of The Polycast Corporation, applications for allowances have been filed pursuant to Section 241 of Chapter X, 11 U.S.C. § 641 (1964), as follows:
Fees and Expenses
Applicant Claimed Total Claimed
Wiendieck & Co., Fees $ 3,000.00
accountants for Expenses 0 $ 3,000.00
trustee
Gruber & Turkel, Fees 6,378.75
attorneys for Expenses 195.00 6,573.75
debtor
Wiggin & Dana, Fees 15,000.00
attorneys for Expenses 890.72 15,890.72
trustee
B. Edwin Sackett, Fees 69,000.00
trustee Expenses 1,108.78 70,108.78
___________
Total Fees and
Expenses Claimed $95,573.25
On May 9, 1968, the Court approved a plan of reorganization of the debtor and in connection therewith filed a memorandum of decision1 which included findings of fact briefly outlining, among other things, the reorganization proceedings, the nature of the debtor's business, sales figures, value of assets, net worth and estimated available cash assuming prompt consummation of the plan. On July 10, 1968, an order was entered confirming the plan of reorganization.
Brief reference will be made to relevant facts set forth in the Court's memorandum of decision of May 9, 1968 for an indication of the size of the estate and what its administration has involved. Such factors are relevant to a determination of the total amount which the estate can afford to bear and which it should justly pay for the benefit rendered to it, after which an allocation appropriately may be made among the various claimants according to the value of the services they have performed.2
In September 1966, after approval of the Chapter X petition, the Court appointed B. Edwin Sackett as trustee and authorized him to operate and manage the property of the debtor. He has. And he has done so diligently, intelligently and with extraordinary effectiveness, considering that the debtor "was for all intents and purposes a dead corporation"3 when he took over as trustee.
Prior to the reorganization proceedings, Polycast manufactured cast acrylic sheet and photographic filters. All manufacturing operations had ceased by the time the trustee was appointed; all employees had been dismissed; there was $593 in the bank; all tangible assets were subject to a lien of a major creditor; and all accounts receivable had been pledged to a financial factor. In short, Polycast was not even "two jumps ahead of the wolf."4
Upon determining that the former method of manufacturing acrylic sheet would no longer be feasible, the trustee concentrated on the development of a new process which Polycast's former president, John O. Beattie, had begun to develop prior to reorganization. In the meanwhile, in order to permit the plant to be kept open on a limited basis, the production and sale of photographic filters was resumed; but the company's filter operations, with a maximum potential sales volume of $60,000 per year, did not alone provide a feasible basis for reorganization.
Development of the new process for casting acrylic sheet went forward thanks to the contribution of time, effort and funds of an investor group; they contributed the material and labor required to construct the machines which in turn they loaned to the trustee without cost. Three of the contemplated five machines are now in production; a fourth is 90% completed. It is anticipated that for 1968 the company will show a net profit of $154,558 (before taxes) on net sales of $1,065,154; and, with five machines in production, that the maximum foreseeable net profit (before taxes) will be $225,000 on net sales of $1,500,000, possibly in 1969. It is the development of the new process for production of acrylic sheet that made reorganization of Polycast feasible.
The plan of reorganization, which has been approved as fair, equitable and feasible, provides in essence that the company will continue as reorganized; that, the debtor being insolvent, the old common stock has no value and will not participate in the reorganized company; that the reorganized company will be authorized to issue 925,000 shares of new common stock, no par value; that preferred tax claims will be paid in full in cash; that all other creditors, including debenture holders, may elect to receive either $3 for each $100 of claim allowed or 10 shares of new common stock for each $100 of claim allowed; and that the reorganized company will issue 750,000 shares of the new common stock to the investor group in return for the transfer by the investor group to the reorganized company of machinery and equipment, patent rights, other consideration and $150,000 in cash.
After consummation of the plan, the indicated value of Polycast will be approximately $784,000 (compared with the total of $1,176,000 in claims of pre-reorganization creditors who, under the plan, will receive $101,920, or approximately 13% of total equity); it will have total assets of approximately $374,500, less liabilities of $10,000, or a net worth of approximately $364,500; and it will have cash on hand for working capital of approximately $121,000 (after allowance for payment of priority claims, administration expenses and amounts which creditors under the plan elect to receive in cash). The trustee testified at the July 8, 1968 hearing on the applications for allowances that the company's cash position after consummation of the plan would be somewhat better than he had indicated at the April 1 and 15, 1968 hearings on approval of the plan — chiefly because less than his earlier estimate of $5,000 would be required to pay creditors who elect to receive cash under the plan.
In the light of this brief summary of the turn-about that has been effected from a virtually dead entity to a going concern which has a fair prospect of a modestly profitable future, and in view of the indicated size of the estate, we turn now to a consideration of the applications for allowances.
On June 12, 1968, the Court entered an order directing that a hearing be held on July 8, 1968, pursuant to Section 247 of the Bankruptcy Act, 11 U.S.C. § 647 (1964), upon all applications for allowances which would have been filed by June 14, 1968.5 Notice of the hearing was given to all creditors, debenture holders and stockholders of the debtor, as well as to the Securities and Exchange Commission.
Detailed written applications for allowances were filed by each of the four applicants above listed. Each appeared at the July 8 hearing, made brief statements and was available for questioning. The trustee testified at some length. Counsel for the SEC appeared, commented upon each application and made specific recommendations as to each. Aside from the objections stated by the SEC, no other objections were voiced at the hearing. No creditor, debenture holder or stockholder appeared in opposition to any of the applications for allowances. The only written communications received by the Court expressing objection to any application for allowance were a telegram from P. S. Gillcrist on behalf of Union Carbide (a creditor) requesting "careful consideration to reduce trustee fee of $69,000," and a similar letter from Norman Nadel on behalf of Benjamin Nadel & Company (a creditor).
Each of the applications for allowances will now be discussed, in the order listed above. With respect to each, the Court will indicate the amount applied for, the amount recommended by the SEC and the amount allowed by the Court.
The accountants' application is for $3,000 for professional services to the trustee from September 16, 1966, the day after the trustee was appointed, to June 12, 1968, the date of the application. No claim is made for expenses. The claim of $3,000 is based on 150 hours, computed at $20 per hour, devoted to the matter by Elwood Wiendieck, a partner of the firm. Attached to the application is a reasonably detailed statement of services rendered.
The SEC recommends that the accountants be allowed $2,000, chiefly on the ground that the Court's order authorizing their employment fixed the rates of compensation at $20 per hour for partners, $15 per hour for senior accountants and $10 per hour for junior accountants; and all the work was done by a partner, whereas some of it was of a nature that could as well have been done by senior or junior accountants. The SEC also points out that the accountants prepared no audit, made no independent confirmation of the accounts receivable and payable and made no investigation or examination.
Normally the Court would be inclined, in view of the provisions of its order authorizing the employment of accountants, to defer to the judgment of the members of the firm as to whether partners, senior accountants or junior accountants should be assigned to specific work. Nevertheless, under all of the circumstances of this reorganization, the Court believes that each of the objections raised by the SEC has merit and, accordingly, each has been taken into...
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