Matter of R. Hoe & Co., Inc.

• Decision Date: 09 January 1979
• Docket Number: No. 69 B 461 (WCC).,69 B 461 (WCC).
• Citation: 471 F. Supp. 493
• Parties: In the Matter of R. HOE & CO., INC., Debtor.
• Court: U.S. District Court — Southern District of New York

471 F. Supp. 493

In the Matter of R. HOE & CO., INC., Debtor.

No. 69 B 461 (WCC).

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

July 25, 1978.

As Amended and Opinion Supplemented October 16, 1978.

As Amended January 9, 1979.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

James B. Kilsheimer, III, New York City, Trustee of the Debtor.

Robert M. Corrao, Scarsdale, N. Y., Additional Trustee of the Debtor.

Winthrop, Stimson, Putnam & Roberts, New York City, for the Trustees.

Townley & Updike, New York City, Special Counsel for the Trustees.

S. D. Leidesdorf & Co., New York City, Accountants for the Trustees.

Harold P. Seligson, Attorney for the Class A Stockholders' Committee, Ralph H. Haas, Chairman, Class A Stockholders' Committee, Irving Isaac, Security Analyst, New York City, for the Class A Stockholders' Committee.

Leinwand, Maron, Hendler & Krause, and Irving Schneider, New York City, for the Unofficial Creditors' Committee.

Eugene J. Zoda, New York City, as Executor of the Estate of Thomas E. Zoda c/o The Finn Company, Inc.

Levin & Weintraub, Sullivan & Cromwell, New York City, for the Debtor.

Wolf, Popper, Ross, Wolf & Jones, New York City, for plaintiff in Selzer v. Stanton, 69 Civ. 2332.

Marvin E. Jacob, Jerome Feller, Bruce Siegel, New York City, for Securities and Exchange Commission.

OPINION AND ORDER

CONNER, District Judge:

R. Hoe & Company, Inc. filed a petition for reorganization under Chapter X of the Bankruptcy Act in July of 1969. Proceedings related to the reorganization consumed a nine-year period and have now drawn to a close. Presently before the Court are the applications of numerous petitioners for awards of final allowances in connection with services rendered in the lengthy reorganization proceeding. A hearing on the applications was held before this Court on November 11, 1977. In awarding fees, the Court has taken full account of the written applications of the petitioners, briefs and supplemental letters furnished the Court, the testimony presented at the November 11 hearing, and the memorandum submitted by the Securities and Exchange Commission, which has participated as a party to this case since its inception in July 1969, pursuant to Section 208 of Chapter X of the Bankruptcy Act, 11 U.S.C. § 608.

Background

A brief account of Hoe's history as a company and of the essential facts of the reorganization will suffice, for purposes of this Opinion, to place the fee applications in perspective.

Hoe is an old company whose history as a manufacturer of printing presses dates back to 1805. In July 1969, Hoe's principal business was the manufacture and sale of printing presses ("Press Division") and metal-decorating presses ("Metal Decorating Press Division"). In addition, Hoe was engaged in the manufacture and sale of saws and related products ("Saw Division").

Press operations, which comprised 90% of Hoe's business, were conducted out of Hoe's plants located in the Bronx, New York and Dunellen, New Jersey, while saw operations were conducted in the Bronx and in larger plants located in Birmingham, Alabama and Portland, Oregon. At the inception of the case, Hoe employed close to 2,000 persons, most of whom were engaged in press operations. Hoe had two classes of stock owned by public investors, Class A stock and common stock. The Class A, of which 448,704 shares were outstanding, was held by about 1,300 persons and the common stock of which 1,937,412 shares were outstanding, was held by about 5,000 persons.

The Press Division of Hoe was sold early in the case, and the Company was thereafter reorganized around its profitable Saw Division. The reorganized Hoe is thus a modest-sized company engaged in the manufacture and sale of saws and related products with annual sales of about $10-11 million and with profits in the range of $1-2 million. In its opinion of June 2, 1977, this Court valued the company at approximately 17 million dollars as a going concern. Hoe is now the employer of approximately 225 persons.

Shortly after Hoe's filing of its voluntary Chapter X petition, on July 7, 1969, John J. Galgay was appointed as trustee by the Honorable Sylvester J. Ryan, United States District Judge for the Southern District of New York.¹ On July 11, 1969, the law firm of Winthrop, Stimson, Putnam & Roberts was appointed general counsel to the trustee. On July 22, 1969, S. D. Leidesdorf & Co. was appointed accountant to the trustee. On June 30, 1970, the law firm of Townley & Updike was appointed special counsel to the trustee.

Mr. Galgay was appointed a Bankruptcy Judge on June 27, 1973. Because of the imminence of this appointment, the Court appointed Robert M. Corrao as additional trustee on April 27, 1973 and James B. Kilsheimer III, Esq. as successor trustee to Mr. Galgay on May 9, 1973 (collectively "trustees"). Winthrop, Stimson, Putnam & Roberts, Townley & Updike and S. D. Leidesdorf & Co. continued to serve the trustee as general counsel, special counsel and accountants, respectively.

An internal plan of reorganization proposed by the trustees was approved by the Court on July 7, 1977 (the Third Amended Plan of Reorganization) and was confirmed on October 7, 1977. The confirmed Plan provided, in pertinent part, that administration and priority claims would be paid in full in cash; unsecured creditors whose claims are $500 (including interest) or less, or who reduce their claims to this amount, would be paid in full in cash; all remaining unsecured creditors would receive 5% of their claims (including interest) in cash and shares of common stock of the reorganized company at the rate of one share for each $5.00 of the balance of their claims; and each Class A stockholder would receive one share of common stock of the reorganized company for each 1.2 shares of Class A stock. The interests of common stockholders were eliminated.

Considering the posture of Hoe in July 1969, when the Company did not have funds even to meet its payroll, these proceedings have been successfully concluded. Difficult tasks were accomplished and problems overcome, including: (1) the renegotiation of outstanding contracts between the Debtor and certain press customers, resulting in substantial cash payments to the Debtor prior to completion of the presses and payments of premiums above the contract prices. These infusions of cash provided the necessary working capital to enable the Debtor to continue as a going concern; (2) sale of the Press Division and the Metal Decorating Press Division; (3) extensive negotiations with a secured creditor ("Talcott") asserting liens on all of Hoe's nonreal estate assets and institution and settlement of a lawsuit seeking to set aside the liens; (4) institution and settlement of a lawsuit against Hoe's former auditors and management resulting in a substantial recovery for the estate and withdrawal of some $25 million in related shareholder proofs of claims; (5) formulation and confirmation of a plan of reorganization; and (6) relocation of Hoe's Bronx corporate offices and saw facilities to Eastchester and Mount Vernon, New York, respectively.

Aggregate Allowances Sought and Financial Posture of the Estate

The requests of petitioners aggregate $5,675,735, of which $1,844,795 has already been paid as interim allowances or otherwise,² leaving a net sum of $3,830,940 now sought. Additionally, reimbursement for expenses is sought in the amount of $52,846.98. Five of the petitions are those of court-appointed officers, that is, the trustees, their attorneys and accountants. Not surprisingly, since these petitioners were charged with the principal responsibilities of administering the Debtor's affairs, their requests, totalling $5,355,735, comprise the bulk (94.4 percent) of the allowances sought.

Hoe's cash on hand (unaudited) as of September 30, 1977 was $4,710,147. At the November 11, 1977 hearing, the additional trustee furnished a projection of Hoe's excess cash as of February 28, 1978. That projection raised question then—and continues to raise question—as to the ability of the reorganized company to bear safely the fees and expenditures now sought. The net requests, including expenses, aggregate $3,883,786.98. According to the additional trustee's projection, however, Hoe's cash balance at February 28, 1978 (after, inter alia, disbursements for cash distributions to creditors under the Plan, capital expenditures and allowances for required Saw Division working capital) was to be only $3,456,147.³

Moreover, these fee requests must also be viewed from the perspective of the estate's present value. The payments requested by the applicants ($3.8 million) represent approximately 22.5% of the $17 million value of the estate as found by the Court. The Securities and Exchange Commission strenuously urges that payments in this amount would unduly burden the estate and possibility jeopardize the reorganization. Its own proposed figure for total final allowances would represent maximum net payments of approximately 14% of the estate's present value, a percentage the Commission believes should not be exceeded. Specifically, the Commission recommends total final allowances of $4,163,335, of which $1,819,795 has already been paid in interim allowances (including regular salary payments to the additional trustee through September 30, 1977), leaving a maximum net sum of $2,335,540 to be paid by the Debtor,⁴ or approximately $1.5 million less than is being sought by petitioners.

Applicable Legal Principles

The fundamental tenet that must guide the Court in the determination of final allowances is that Chapter X of the Bankruptcy Act is primarily a public investor protection statute that was enacted for the relief of debtors and their creditors and shareholders.⁵ In practical terms, it is the creditors and Class A shareholders of Hoe who will bear the cost of paying the fees sought by petitioners in this case. Chapter X was derived from former § 77B of the ...