Matter of WT Grant Co.
| Decision Date | 20 February 1980 |
| Docket Number | Bankruptcy No. 75 B 1735. |
| Citation | 4 BR 53 |
| Parties | In the Matter of W.T. GRANT COMPANY, Bankrupt. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Charles G. Rodman, as Trustee of the Estate of W.T. Grant Company, Bankrupt, filed an application with the Court, dated April 18, 1979, for an order approving and authorizing the dissemination of an offer of compromise and settlement of the claims asserted against the bankrupt estate by the holders of the bankrupt's 4u% Convertible Subordinated Debentures due 1996 and the 4% Convertible Subordinated Debentures due 1990 (hereinafter respectively referred to as the "4u% Debentures" and the "4% Debentures" or sometimes collectively as the "Debentures" and the holders as "Subordinated Debentureholders"). By order dated April 18, 1979, the Court set a time and place for a hearing to consider the Trustee's application and directed that notice thereof be given to all parties in interest, the Securities and Exchange Commission and by publication. The hearing commenced on May 22, 1979 and continued, intermittently, on five days thereafter ending on June 19, 1979. Five (5) witnesses testified during the hearing. The transcript of the hearing consists of 987 pages and 80 exhibits were received in evidence aggregating, at least 1,500 additional pages. The Trustee and certain claimed Subordinated Debentureholders objecting to the offer of compromise and settlement and its dissemination (the "Objectants"), filed proposed findings of fact and conclusions of law and memoranda of law subsequent to the hearing aggregating in excess of 332 pages.
This proceeding and the Trustee's application in accordance with Section 27 of the Bankruptcy Act, 11 U.S.C. § 50, and Bankruptcy Rule 919(a), represent a further segment in the continuing saga of the administration of this extraordinarily huge and complex bankruptcy case. It is the latest in a series of compromises and settlements spawned by the bankruptcy case and proposed by the Trustee. Each of the compromises, as approved, has enabled the prompt achievement of the objective of bankruptcy cases, i.e., the payment of dividends to claimants entitled thereto. Grayson-Robinson Stores, Inc. v. Securities and Exchange Commission, 320 F.2d 940 (2d Cir. 1963).
The major compromises and settlements are described in the decisions approving each of them. In re W.T. Grant Company, 3 Bankr.Ct.Dec. 54 (February 14, 1977), aff'd (S.D.N.Y.1977, Knapp, D.J.), aff'd 2d Cir. 578 F.2d 1372 (1978) (Secured Suppliers Committee); In re W.T. Grant Company, January 18, 1978 (4u% Sinking Fund Debentures); and In re W.T. Grant Company, 4 Bankr.Ct.Dec. 597 (1978) (Bank Claimants).
Before detailing my findings and conclusions, as noted, and pursuant to the directions of the Court made at the conclusion of the hearing, the Trustee and the Objectants to the Trustee's application have each served and filed on all parties in interest their respective proposed findings of fact and conclusions of law. I am aware of the teachings of the United States Supreme Court in U.S. v. El Paso Natural Gas Co., 376 U.S. 651, 656-57; 84 S.Ct. 1044, 1047, 12 L.Ed.2d 12 (1964), in which trial courts are cautioned not to slavishly follow proposed findings of fact and conclusions of law as submitted by a party. The findings and conclusions as hereinafter set forth are based upon the Trustee's application, the evidence admitted during the hearing and the applicable principles of law. In this opinion, I have adopted findings of fact and conclusions of law submitted by the Trustee for the reason that they accurately state and reflect the true state of the record. It would be a waste of judicial time on my part merely to rephrase proposed findings and conclusions so accurately stated.
In determining to adopt such proposed findings of fact and conclusions of law as part of this opinion, I have scrutinized the Trustee's application, the proposed findings of fact and conclusions of law submitted by the parties and the memoranda of law and other papers submitted by the parties. I have also scrutinized the objections interposed by Messrs. Victor Kurtz and William Kuntz III and I have carefully reviewed the transcript of the hearing. I have found the citations to the record and the references to exhibits admitted into evidence as made on behalf of the Trustee to be accurate.
This proceeding has its genesis in the filing with the Court of a petition for an arrangement under Chapter XI, Section 322 of the Bankruptcy Act, and Bankruptcy Rule 11-6, by W.T. Grant Company ("Grant" or "Bankrupt") on October 2, 1975. By order dated April 13, 1976 Grant was adjudged a bankrupt under the Bankruptcy Act. Charles G. Rodman thereafter qualified as the Trustee of the bankrupt estate and has since acted in that capacity.
At the time of the filing of the Chapter XI petition, Grant had recorded liabilities significantly in excess of one billion dollars. A major portion of such liabilities were represented by obligations to banks and to holders of the Subordinated Debentures. During the course of the bankruptcy case claims were filed on behalf of the banks against Grant aggregating $657,369,048 (the "Bank Loans"). These claims were all incorporated in the proof of claim filed by Morgan Guaranty Trust Company of New York ("Morgan Guaranty") on behalf of itself and as agent for twenty-five (25) bank creditors of Grant (the "Bank Claimants"), Claim No. 525438. By order of this Court dated July 20, 1978 (4 Bankr.Ct.Dec. 597) and in accordance with the Bank Settlement Agreement dated as of February 24, 1978 as authorized and approved by said order, the Bank Claims were allowed in the minimum amount of $650,000,000. No appeal was filed from the order of July 20, 1978 and the Bank Settlement Agreement has been implemented in accordance with its terms.
The 4% Debentures were issued pursuant to an Indenture dated as of June 1, 1965 (the "1965 Indenture") between Grant and First National City Bank, as Indenture Trustee ("Citibank"). As a result of the exercise of conversion rights, as of the date of bankruptcy the aggregate outstanding principal balance of the 4% Debentures, originally in the amount of $35,000,000, had been reduced to $834,000. There are estimated to be 128 holders of the 4% Debentures.
Pursuant to the terms of the 4% Debentures and the 1965 Indenture, the 4% Debentures are subordinated in payment to certain other indebtedness of Grant. The 4% Debentures expressly provide that:
The indebtedness evidenced by the Debentures is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Company, whether outstanding at the date of the Indenture or thereafter incurred . . ..
Article Three of the 1965 Indenture sets forth the covenants with respect to the subordination of the 4% Debentures. Section 3.01 of the 1965 Indenture states:
The indebtedness evidenced by the Debentures, including the principal thereof and premium, if any, and interest thereon, shall be subordinate and subject in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Indebtedness of the Company, whether now outstanding or hereafter incurred, and each holder of Debentures, by his acceptance thereof, agrees to and shall be bound by the provisions of this Article Three.
The 4u% Debentures were issued pursuant to an Indenture dated as of April 15, 1971 (the "1971 Indenture") between Grant and The Chase Manhattan Bank, N.A. ("Chase"), as Indenture Trustee. The outstanding principal balance of the 4u% Debentures originally in the amount of $100,000,000 had been reduced to $92,507,000 as of October 2, 1975. As of March 15, 1979, there were 2,315 registered holders of the 4u% Debentures.
On or about August 14, 1974, Chase resigned as Indenture Trustee and was succeeded by United States Trust Company of New York, as Successor Indenture Trustee for the 4u% Debentures ("U.S. Trust"). U.S. Trust continues to act as Successor Indenture Trustee under the 1971 Indenture.
Pursuant to the terms of the 4u% Debentures and the 1971 Indenture, the 4u% Debentures are subordinated in payment to certain other indebtedness of Grant. The 4u% Debentures expressly provide that:
The indebtedness evidenced by the Debentures is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of the principal of and premium, if any, and interest on all Senior Indebtedness as defined in the Indenture.
Article Four of the 1971 Indenture sets forth the covenants with respect to the subordination of the 4u% Debentures. Section 4.01 of the 1971 Indenture states:
The indebtedness evidenced by the Debentures, including the principal thereof and premium, if any, and interest thereon, shall be subordinate and subject in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Indebtedness of the Company, whether now outstanding or hereafter incurred, and each holder of Debentures, by his acceptance thereof, agrees to and shall be bound by the provisions of this Article Four.
The Bank Settlement Agreement referred to above resolved an adversary proceeding that had been commenced by the Bank Claimants against the Trustee. The Bank Claimants had asserted, inter alia, (1) that their claims were secured under a certain Inventory Security Agreement between Grant and Fidelity Union Trust Company, as agent, dated as of May 15, 1975 (the "Inventory Security Agreement"), and a certain Security Agreement between Grant and Morgan Guaranty, as agent, dated as of September 16, 1974 (the "Initial Security Agreement"); and (...
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