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the price was too high to pay for the accommodation. A private individual might have taken advantage of it, compelled by his necessities, but not a receiver, who is not supposed to resort to such extreme and costly business expedients. No duubt the accountants had the advice of counsel, but this was a business, and not a legal, matter, and the advice of counsel, therefore, is of no consequence. It would have been more to the point, in so important a matter, to have applied to the court for direction. The compete way in which the receivers put themselves into the hands of their agents by this arrangement is shown by the fact that, when the mill was finally shut down, all that was coming to the receivers from sales was forthwith appropriated on account of loans, although these were supposed to be for a definite time, and to be amply secured by bonds which had been put up as collateral. Whether this offset could be lawfully made, under the circumstances, in view of the insolvency of the receivership, I will not undertake to say.
Complaint is also made because Mr. Light was retained by the receivers as superintendent of the mill, the Iron & Steel Company, as it is said, having got into the existing difficulties because of his mismanagement. With the mill turned over to Mr. Light, according to this argument, and the finances to Newkirk & Co., no wonder that the receivership was a failure. It must be confessed that the previous business record of Mr. Liglit does not seem to have been altogether a successful one; but, whatever it was, he was an iron man ot considerable experience, if not, indeed, of recognized ability, and was apparently the only one immediately available. He was also intimately acquainted with these particular works, as well as the men employed at them, and was thus calculated to get the best returns therefrom; and while his management was again a losing one, the receivers are not so much to blame for employing him to run the mill as in not exercising proper supervision and control of the business outside of that, by which this might have been largely, if not wliolly, obviated.
The sale of the Lickdale Chemical Works is also criticised; and, judged by the highly colored representations made with regard to their earning capacity, in the prospectus on which the bonds were sought to be floated, it might seem questionable. But the fact is that the company only liad a lease of this plant, and, according to their experience with it, it did not pay tlie receivers to run it; it being cheaper, as they found, to buy the charcoal which they needed than to try and make it there. All that they owned or sold was the personal property in and about it, for which they got a fair price; and while it may not have been altogether provident to dispose of it to Mr. Light, who was not financially responsible, the receivers have assumed the collection of the balance which he owes, which is all that could be asked of them.
As already stated, for at least two months before they closed down the business the receivers adınittedly knew that they were losirig money. In view of this, and the insolvency which thus faced them, they were bound to see from that time on, if not before, that one creditor was not preferred above another; each being entitled to equal treatnient, and to a pro rata payment from the available assets in their hands. The receivers awoke to the idea at last, but they should have done so earlier. Instead of this, however, some creditors were paid in full, while others only got a part, and some were put off without anything. It is not possible from the data at hand to determine how far preferences of this kind were given, but to the extent that they were, the creditors who have now to take less than they otherwise would are entitled to require that the receivers make good the difference.
As the result of these conclusions, the account of the receivers must go back for material readjustment, and it may be well to indicate just how it is to be restated. The receivers will be charged with the available assets which came into their hands at the beginning of the receivership, including accounts receivable and material and supplies, as determined by the corrected inventory, and also with all moneys received by them from the business outside of that. They will be credited, on the other hand, with the disbursements made, the uncollectible accounts which they have on their books, and other undisposable assets. In order to meet the claims of creditors, they will be further surcharged with an amount, which, with the cash on hand and the available assets, treated as such, will be sufficient to pay in full the unsecured outstanding indebtedness of the receivership and the cost of the accounting, which they must also bear. To prevent misunderstanding, it may be well to note in this connection that while all the matters which have been considered contribute, each to the extent that it goes, to this result, this is particularly true of tlie charge of mismanagement in running the business at a loss, without the ordinary checks by which it would have been prevented, to which the contracting of the unpaid indebtedness, without anything to meet it, is directly traceable, and which is thus, of itself, sufficient to sustain the surcharge which it is unfortunately found necessary to make.
Included in the indebtedness to be taken care of are, of course, the fees of counsel; but not as a preferred claim, as allowed by the master, nor to an amount exceeding $1,000, which is the full value, in my judgment, of the services rendered by the three counsel associated together in directing the receivership, and which is not to be increased by reason of numbers. The special counsel employed to resist the efforts of creditors who got judgments, and levied upon the personal property in the hands of the receivers, has been sufficiently compensated, as it seems to me, by the amount already paid. The attempts to stay execution in the common pleas and superior court, upon which more is claimed, were useless as well as futile. Had application been made to this court, as it had to be in the end, it would have saved all this trouble and expense; the property being in the charge of the court, whose authority was ample to see that it was not disturbed.
The exceptions, to the extent indicated, are sustained, and the accounts of the receivers are referred back to the master, with directions to restate the same in the manner pointed out, and thereupon to distribute, to the parties entitled thereto, the balance with which the accountants are thereby found to be chargeable.
In re FLEISCHER.
(District Court, S. D. New York. February 7, 1907.) BANKRUPTCY-EXAMINATION OF BANKRUPT--PowerS OF COURT.
An alleged bankrupt for whose property a receiver has been appointed in involuntary proceedings pending a hearing on the petition is a “bankrupt whose estate is in process of administration under this act,” within the meaning of Bankr. Act July 1, 1898, c. 541, $ 21a, 30 Stat. 552 [U. S. Comp. St. 1901, p. 3430), and on application by the receiver the court may order bim to appear for examination thereunder; and aside from such section the court has authority to make such an order under the general equity powers conferred upon it by the act. In Bankruptcy. On motion to vacate order for examination of alleged bankrupt.
Goldfogle, Cohn & Lind and Mr. Cohn, for the motion.
HOUGH, District Judge. An involuntary petition having been filed against Fleischer, and a receiver appointed, an order was entered directing the person proceeded against to appear before the court or a commissioner thereof and submit to an examination touching his acts, conduct, or property. The motion is to vacate this order, in that the court had no jurisdiction to grant the same prior to Fleischer's adjudication.
The order in question is in assumed compliance with section 21a of Bankr. Act July 1, 1898, c. 541, 30 Stat. 552 [U. S. Comp. St. 1901, p. 3430], and the motion to vacate rests upon the proposition that Fleischer (before adjudication) is not a person "whose estate is in process of administration under this act.' It is not denied that the application for the order, having been made by a receiver, was made by an “officer," and therefore to that extent proper. In re Fixen, 2 Am. Bankr. Rep. 822, 96 Fed. 748. And the same case furnishes authority for the action of the receiver in proceeding to examine the alleged bankrupt prior to his adjudication. This motion, however, challenges the authority of that case by criticising the word “administration” as found in the section of the act referred to. In my opinion this criticism is ill founded. The word is not used in the act with any technical or narrow meaning. To administer is “to control or regulate in behalf of others" (Cent. Dict.), and this is exactly what a receiver in bankruptcy does, and must do, with the property of one against whom a petition has been filed. It is the very object of his appointment to control and regulate on behalf of the creditors of the alleged bankrupt the property concerning which the investigation is to take place. It is a matter of common knowledge that orders, under circumstances similar to the present, have long been made in this circuit. The same practice was evidently pursued in the South Carolina district (In re Knopf, 16 Am. Bankr. Rep. 432, 144 Fed. 245), and it is within the knowledge of most practitioners that the same course is pursued by the federal courts sitting in the principal commercial cities of the Union. The practice, however, is older than the present
act. Under tire statute of 1841 the then judge of this court required an examination before adjudication. Ex parte Lee, Fed Cas. No. 8,178. So, also, under the act of 1867 an examination might be had "before the appointment of the assignee" upon cause shown (In re Gilbert, Fed. Cas. No. 5,410), while in Re Salkey, Fed. Cas. No. 12,252, it was distinctly held that the power of the court was "plenary prior to the adjudication, not only over the debtor's property, but over his person,” and that, therefore, he might be examined fully before he definitely became a bankrupt by the adjudicating decree.
It is, I think, also well argued on behalf of the receiver that ample power to support the order objected to is to be found in the general equity powers of the bankruptcy court as conferred ar d explained by the act itself and the decisions thereunder. The cor.struction invariably placed upon federal bankruptcy statutes has, in the language of Judge Betts (Ex parte Lee, supra), been to hold that the bankruptcy tribunal “is also authorized to proceed summarily as in chancery, and, reasoning from that analogy, under the statute then in force, that learned court continued:
“In summary proceedings in equity It is the ordinary pract'ce to send matters before a master in chancery for examination.
[The alleged bankrupt) is therefore bound to go before a commissioner or examination before he is declared bankrupt."
Nor are the powers of the courts to which the adninistration of the present bankruptcy law is intrusted any more confined. In Re Lipke, 3 Am. Bankr. Rep. 560, 98 Fed. 970, Judge I'rown of this court held tha under “the broad powers at law and ii equity conferred upon the District Courts in bankruptcy proceedings," it was competent "to issue an order in the nature of a writ of ne exeat" whenever such process became necessary for the enforcernent of the provisions of the bankrupt act. And this because such wi it was one of “familiar use in equity.” In Re Levi & Klauber, 15 Am. Bankr. Rep. 294, 142 Fed. 962, 74 C. C. A. 132, the Circuit Court of Appeals for this circuit declared that "under the present act proceedings upon an [involuntary) petition have the ordinary incidents of a hearing in equity," and obviously such condition of affairs arises immediately upon the filing of the petition, for such a petition is "a caveat to all the world and in effect an attachment and injunction." Mueller v. Nugent, 18+ U. S, 1, 22 Sup. Ct. 269, 46 L. Ed. 405. Regarding, therefore, an involuntary petition as the beginning of an action in equity in which: an attachment and injunction instantly issues, it does not appear to nie to be open to doubt that the moment a receiver is appointed for the purpose of making the attachment fruitful and enforcing the injunction that the administration of the estate has begun, and an investigation thereinto is not only proper and necessary, but explicitly authorized by the act.
It is also to be noted that by section 1, subd. 4 (30 Stat. 544 (U. S. Comp. St. 1901, p. 3418]), the word "bankrupt” includes an alleged bankrupt, so that no argument can be based upon the use of the former word in section 21a. Assuming that the proceedings upon an involuntary petition are of the nature of a summary proceeding in equity, it is obviously important to observe that section 2, subd. 3 (30 Stat, 545 [U. S. Comp. St. 1901, p. 3421]), authorizes the court to appoint receivers "to take charge of the property of bankrupts (including alleged bankrupts] after the filing of the petition" and to (15) "make such orders * in addition to those specifically provided for as may be necessary for the enforcement of the provisions of this act"; while the enumeration of powers contained in section 2 concludes with the significant statement that the grant of enumerated powers shall not "be construed to deprive a court of bankruptcy of any power it would possess were certain specific powers not herein enumerated." It follows, therefore, that entirely apart from the to me am.ple language of section 21a the order herein complained of may and should be sustained if it, or any analogue thereof, would be allowable in the conduct of an action in equity in a court of plenary jurisdiction. In New York, therefore, under the act of March 9, 1892 (27 Stat. 7, c. 14 (U. S. Comp. St. 1901, p. 661])-providing that depositions of witnesses may be taken in the mode prescribed by the laws of the state in which the federal courts sit--the provisions of the Code of Civil Procedure with respect to examinations before trial are ample for the purpose sought to be attained by the order under consideration. I think, also, the same result may be reached under the equity rules. Under section 30, Act July 1, 1898, c. 511, 30 Stat. 55+ [U. S. Comp. St. 1901, p. 3134]; general order No. 37 (89 Fed. xiv; 32 C. C. A. xxxvi), has been promulgated by the Supreme Court of the United States. This order establishes the rules of equity practice as regulating procedure in bankruptcy so far, inter alia, as taking testimony is concerned, and equity rule No. 70 provides for the examination of a “single witness to a material fact even before defendant's answer, and it appears to me obviously true that an alleged bankrupt as to his own business dealings is eminently a single witness to a material fact.
The desirability and importance of promptly conducting an investigation into the affairs of any person petitioned into the bankruptcy court has been too often shown to be open to doubt. To wait until adjudication to ascertain from the bankrupt's own lips the situs of his property and his own explanations of the situation in which the creditors find themselves is in many cases giving to those guilty of fraud just the necessary time to permit the fraud to be consummated and the fruits thereof secured. In my opinion it is not too much to say that a skillful and vigorous use of early examinations of involuntary bankrupts is the one thing which enables creditors to prevent this statute being easily turned into a shield for dishonesty and a potent aid to fraud.
The motion is denied.