United States Shipbuilding Co. v. Conklin

• Decision Date: 28 November 1903
• Docket Number: 28.
• Parties: UNITED STATES SHIPBUILDING CO. v. CONKLIN et al.
• Court: U.S. Court of Appeals — Third Circuit

126 F. 132

UNITED STATES SHIPBUILDING CO. v. CONKLIN et al.

No. 28.

United States Court of Appeals, Third Circuit.

November 28, 1903

Charles L. Corbin and John G. Johnson, for appellant.

Samuel Untermyer and R. V. Lindabury, for appellees.

Before ACHESON, DALLAS, and GRAY, Circuit Judges.

ACHESON Circuit Judge.

This is an appeal from an interlocutory order entered in the Circuit Court of the United States for the district of New Jersey on June 30, 1903, appointing a receiver for the defendant below (the appellant), the United States Shipbuilding Company, a corporation of the state of New Jersey, and awarding an injunction against the company, its directors and officers.

The complainants in the bill are first mortgage bondholders and stockholders of the defendant corporation. The suit was commenced on June 11, 1903. The bill of complaint charges and with particularity sets forth matters tending to show that the defendant corporation is insolvent. The bill alleges that the defendant has large past-due obligations, which it is unable to meet, and has no funds with which to pay its maturing accounts or bills payable, and no means of securing extensions thereof or further credit; that 'the defendant has bills payable maturing between now and August 1st independent of maturing accounts, amounting to over $410,000 which it is unable to pay, in addition to which the defendant owes a very large amount of current accounts, amounting to a number of hundreds of thousands of dollars, and which will mature between now and July 1st,' which it will be unable to meet, and that it has neither funds nor credit with which to continue its business; and that its directors have determined to make default in the payment of the interest maturing on July 1, 1903, on its bonded debt, and have so announced. The bill further charges that the directors of the defendant corporation have recklessly mismanaged its affairs and that by their mismanagement the insolvency of the corporation has been brought about.

The exhibits attached to the bill show that the defendant corporation was organized on June 17, 1902, and that by an amended certificate filed on August 1, 1902, its capital stock was largely increased; that within 10 months thereafter, to wit, on May 25, 1903, a reorganization plan was publicly issued and circulated by a reorganization committee, at least one of whom was a member of the board of directors of the company; that to the communication by the reorganization committee to the holders of bonds and stock of the corporation of the proposed plan of reorganization was attached a letter signed by the president of the company indorsing the scheme and recommending its acceptance, and also a letter signed by the treasurer of the company showing its serious financial embarrassment and its absolute need of new cash working capital. This plan provides for the surrender of all of the outstanding first mortgage bonds, and the cancellation of the mortgage on the shipbuilding plants given to secure these bonds, and the substitution therefor of preferred stock, the same to be subject to a mortgage given on the plant to secure $2,000,000 to be advanced, as well as $10,000,000 of outstanding bonds now secured by a mortgage on the plant of the shipbuilding company second to that sought to be canceled; and, in addition to securing a first mortgage for the mortgage now secured by a second lien, the person furnishing the $2,000,000 of working capital is to be entitled to receive $1,500,000 of preferred stock and $1,600,000 of common stock in the new company to be organized for taking over the plants. In their published communication of the proposed plan of reorganization to the holders of bonds and stock of the defendant corporation the reorganization committee make the following statements, which are substantiated by the letter of the treasurer of the company above referred to:

'By reason of the excessive mortgage obligations of the United States Shipbuilding Company, its borrowing capacity and credit has become so seriously affected that outstanding notes are being pressed for payment, and the making of further loans is rendered impossible. * * * The United States Shipbuilding Company has been compelled, from its organization, to make advances from time to time to its constituent companies, for working capital and cost of operation, most of the available cash in hand. The reduction of the working capital thus disclosed, and the impracticability of drawing upon the resources of the shipbuilding plants, have resulted in a material impairment of the cash assets of the United States Shipbuilding Company. The company will be unable on July 1, 1903, to meet the interest or sinking fund accruing on its first mortgage thirty year bonds. * * * A readjustment, therefore, is imperative in order to give a fair and equitable recognition to the holders of the respective securities; to establish sound financial credit; to secure additional cash working capital for the necessary improvements in the various properties; and for the liquidation of the floating obligations of all the companies.'

The bill also charges that large quantities of the bonds and stock of the defendant corporation have been issued to its directors and others without any proper or sufficient consideration.

To further indicate the scope of the bill of complaint and relief sought, we quote the twenty-ninth paragraph of the bill:

'Twenty-Ninth. Your orators further state that it is necessary in the interest of all the stockholders of the defendant that a receiver, representing all the stockholders and creditors, should bring suit against the directors of said defendant and all others who have received stock and bonds of said defendant without any consideration, and should bring suit in the interest of all the stockholders and creditors of said defendant against the directors for the damages suffered by

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