Shachat v. Standard Auto Supply Co.

• Decision Date: 16 April 1930
• Citation: 150 A. 183
• Parties: SHACHAT v. STANDARD AUTO SUPPLY CO.
• Court: New Jersey Court of Chancery

150 A. 183

SHACHAT

v. STANDARD AUTO SUPPLY CO.

Court of Chancery of New Jersey.

April 16, 1930.

Syllabus by the Court.

A "receiver" appointed under the Corporation Act (2 Comp. St. 1910, p. 1644, § 68) is an independent entity created by the statute to whom both possession of and title to the assets of the insolvent corporation passes.

Syllabus by the Court.

If a receiver under the statute be appointed prior to the filing of a petition in bankruptcy, he continues to hold possession of and title to the assets of the insolvent corporation, as an adverse claimant, to the extent of being secured for the moneys which he may have expended under the direction of the court of his appointment, and the debts which he has incurred and has not paid, and his allowances and the allowances of his solicitor, if he have one. And this court will award reasonable allowances before directing the transfer of the estate to the bankruptcy court. Syllabus by the Court.

The duties of a receiver are executive, administrative, and judicial. He is not obliged to perform legal services on behalf of the estate, but may, with the permission of the court, employ counsel to advisee him.

Syllabus by the Court.

If, with the permission of the court, a receiver has employed counsel, it is the duty of the court to fix the compensation of counsel.

Suit by Abraham Shachat against Standard Auto Supply Company. On order to show cause why receiver's final report, and account should not be confirmed and allowances made.

Decree advised.

C. Wallace Vail, of Newark, for receiver.

Jacob Fox, of Newark, for receiver.

Philip J. Warner, of Newark, for trustee in bankruptcy.

CHURCH, Vice Chancellor.

To a bill of complaint filed by a stockholder on September 17, 1929, the Standard Auto Supply Company, a corporation, filed an answer admitting the allegations contained therein and consented to the appointment of a receiver. The defendant corporation was declared insolvent and enjoined from exercising its franchises. C. Wallace Vail was appointed receiver under the statute. Stockholders and creditors were ordered to show cause on September 24, 1929, why the receiver should not be continued. Upon the argument of the order to show cause, due proof having been made of its service upon stockholders and creditors, no one appeared in opposition, and, accordingly, Mr. Vail was continued as receiver.

On October 3, 1929, an involuntary petition was filed in bankruptcy against the defendant corporation, and on January 20, 1930, the corporation was adjudicated a bankrupt, and on March 7, 1930, the order appointing a trustee was filed.

The estate of defendant corporation has been administered by Mr. Vail, the receiver appointed by this court, and all of its assets reduced to cash. No application was made at any time during the administration by those in interest in the bankruptcy proceedings to direct the receiver appointed herein to turn over the assets to the control of the court of bankruptcy, and there was no appearance herein by any one interested in the bankruptcy proceedings until the receiver filed his final accounting, applying for approval of the account and for allowances for himself and his solicitor and instructions to turn over the balance of the moneys in his hands to the trustee in bankruptcy.

The final account of the receiver discloses that he collected a total of $12,088.60, of which $7,931.56 was the result of a public auction sale; the balance was the result of the collection of numerous small accounts receivable, ranging from $1.85 to $125 each. The collection of the accounts was a very difficult task and consumed a large amount of time, due to the unwillingness of the debtors to pay, as is usually the case after a receiver is appointed. Debtors often feel that the appointment of a receiver affords them an excellent opportunity to escape the payment of their obligations. The receiver disbursed the sum of $2, 192.61, about which no question has been raised, which leaves a balance in his hands of $10,495.99, to be turned over to the trustee in bankruptcy after the payment of the costs of administration in this court.

Upon the return of the order to show cause why the receiver appointed by this court should not be discharged, his accounts approved, and allowances made to him and to his solicitor for administering the estate, counsel appeared on behalf of the trustee in bankruptcy, and contended that: It was not within the jurisdiction of this court to fix the allowances of the receiver and solicitor and other costs of administration; if this court did fix the allowances and other costs of administration, the propriety and amount of such allowances and costs of administration were subject to review by the bankruptcy court before such allowances and costs of administration could be paid; the allowances asked for by the receiver and his solicitor respectively were excessive; if this court did make any allowances, the receiver, being a lawyer and solicitor of this court, should alone be paid and nothing allowed to his solicitor.

The practice in this state in cases where bankruptcy proceedings are instituted after the appointment of a receiver by this court for an insolvent corporation under the statute seems to be well settled. Although the bankruptcy court is ultimately entitled to the control of the property, the proper practice is for the receiver to apply to this court to pass on his accounts, fix his allowances and other costs of administration, and for a direction to turn over the balance of moneys and other assets in his hands to the trustee in bankruptcy.

Vice Chancellor Lane, in Cudahy Packing Company v. New Jersey Dairy Products Company, 90 N. J. Eq. page 541, 107 A. 147, said: "I take this opportunity to indicate the practice in these matters. Upon the appointment of a trustee in bankruptcy of the assets of a corporation, the property of which is in the control of a receiver of this court, where it appears that the federal court has jurisdiction and is entitled to the ultimate control of the assets, it is the duty of the receiver of this court to apply to this court to pass his accounts, fix his compensation, and direct that he turn over the balance to the trustee. The receiver may not, without the consent of this court, either submit to the jurisdiction of the bankruptcy court to fix his compensation, or turn over to the trustee in bankruptcy or to any other officer of the bankruptcy court, or of any court, any of the assets within his control. If the receiver does not move, then the trustee in bankruptcy may apply to this court to compel the receiver to file his account and may ask this court for an order fixing the compensation of the receiver and for a direction that the balance be turned over to the trustee. If the trustee in bankruptcy is dissatisfied with the determination of this court, appeal lies in the ordinary course. Singer v. National Bedstead Co., 65 N. J. Eq. 290, 55 A. 868; Kennedy v. American Tanning Co., 81 N. J. Eq. 109, 85 A. 812. It is conceded, of course, that in a case in which the bankruptcy court has jurisdiction the bankruptcy law is paramount, but the practice which should be pursued is clearly indicated by the Supreme Court of the United States in Re Watts & Sachs, 190 U. S. 1, 23 S. Ct. 718, 47 L. Ed. 933. I am aware that there may be found statements of federal judges to the effect that judgments of state courts as to fees, etc., may be reviewed by courts of bankruptcy, but I know of no instance in which such assumed power has been exercised. The review spoken of by the Supreme Court in the Watts Case is a review by appeal in the ordinary...