In re Transvision, Inc., 22
| Decision Date | 09 November 1954 |
| Docket Number | Docket 23055.,No. 22,22 |
| Citation | 217 F.2d 243 |
| Parties | In the Matter of TRANSVISION, Inc., Debtor-Appellee. Securities and Exchange Commission, Appellant. |
| Court | U.S. Court of Appeals — Second Circuit |
William H. Timbers, Washington, D. C., George Zolotar, New York City, David Ferber, Washington, D. C. (Arthur Goldman, New York City, of counsel), for appellant.
Schaeffer & Goldstein, New York City, for debtor-appellee.
Before CHASE, MEDINA and HARLAN, Circuit Judges.
Writ of Certiorari Denied February 28, 1955. See 75 S.Ct. 440.
These are appeals by the Securities and Exchange Commission from two orders of the United States District Court for the Southern District of New York entered on January 12, 1954. One order determined, in response to a question submitted by the referee in bankruptcy, that this proceeding was properly brought under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., and should continue therein and directed the referee to proceed therewith. The other denied motions of the Commission (a) for the dismissal of the debtor's Chapter XI petition and of the proceeding and (b) for leave to intervene to urge dismissal.
Transvision, Inc., the debtor, filed a petition under Section 322 of the Bankruptcy Act on September 25, 1953 proposing a Chapter XI arrangement and, by orders entered on the same day, the debtor was continued in possession and the proceeding referred to a referee in bankruptcy. The referee, in turn, by notice dated October 16, 1953, submitted for determination by a District Judge the question "whether the proceeding should remain in Chapter XI or whether, because of the public issue of stock, the proceeding belongs in Chapter X." On October 28, 1953, the Securities and Exchange Commission moved (a) to dismiss the debtor's petition, (b) to refuse confirmation of the arrangement, (c) to dismiss the proceedings unless the petition be amended, or a creditor's petition be filed, to conform to the provisions of Chapter X, 11 U.S.C.A. § 501 et seq., and, simultaneously, for leave to intervene in the Chapter XI proceeding for the purpose of making the motions to dismiss. After a hearing on October 28, 1953, on the question submitted by the referee and on the Commission's motions, and pursuant to an opinion filed on December 30, 1953, the orders from which this appeal has been taken were entered on January 12, 1954.
The debtor is a New York corporation which has been in existence since 1946, and is engaged in the manufacture of television and electronic products. It has outstanding 385,000 shares of $1 par value common stock and 1,773½ shares of $100 par value preferred stock. Emmanuel M. Cohan, the debtor's principal promoter, his brother and other management interests hold 250,000 shares of the common stock in which voting control is vested and the remaining 135,000 shares are held by approximately 425 members of the investing public. Apparently, the management interest's shares were acquired at a cost of about 30¢ per share and the shares held by the investing public were offered in 1950 at $2.75 per share, following the filing of a Registration Statement with the SEC. The prospectus issued to the public at the time of the public sale disclosed the acquisition cost of the management interest's shares.
The preferred stock is held exclusively by Cohan and his wholly owned corporation, Croyden, having been issued to them in 1950 together with $150,000 in non-interest bearing notes to replace a pre-existing indebtedness to Cohan and Croyden of approximately $327,350. This conversion, although occurring subsequent to the public sale, had been envisaged by the prospectus. The preferred stock is entitled to $5 a share in cumulative yearly dividends and $100 a share in liquidation. No dividends have ever been paid on either class of stock and as of October 31, 1953, the dividend arrearages on the preferred aggregated $26,603. In accordance with the statements published in the prospectus, the $150,000 in notes were subordinated to a loan from the Reconstruction Finance Corporation in the amount of $95,002.
The debtor's schedules, filed October 5, 1953, showed that, according to its books, it has assets of $998,041 and liabilities aggregating $722,589. Of these liabilities, $633,817 consist of unsecured claims, of which $274,096 is due to Cohan, Croyden and other corporate insiders. The bulk of the $274,096 is comprised of the $150,000 in non-interest bearing notes previously mentioned, an additional $100,000 in interest bearing notes given as a result of advances allegedly made by Cohan to the corporation subsequent to 1950, and some $13,896 in accrued interest on the latter indebtedness.
The debtor's executive offices and a substantial portion of its manufacturing plant consisting of approximately 18,000 square feet of space are leased from the Lawrence Syndicate, which is controlled by Cohan, at a lease figure of $12,000 per annum rent plus taxes and assessments of approximately $1,200 per year. This lease and its terms were described in the prospectus issued to the public prior to the public sale and, since that date, the fixed rental has been reduced to $750 per month, apart from the taxes and assessments.
The debtor's operations for the entire six-year period 1947-1952 resulted in a net loss of $217,493, the debtor having shown profits in 1947, 1948 and 1952 and losses in 1949, 1950 and 1951. A $5,000 loss was estimated for the month following the filing of the Chapter XI petition. Unfilled orders aggregate $27,000 and sales are presently estimated by the debtor at $75,000 monthly, in addition to which the debtor claimed to have prime government contracts for approximately $350,000, which it expected to deliver during the eight-month period commencing December, 1953.
The debtor's Chapter XI petition proposes an arrangement which provides for the liquidation of the unsecured claims against it, except those not exceeding $50 which are to be paid in full on confirmation, in 50 monthly...
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