In re George Mather's Sons' Co.

52 N.J. Eq. 607 | New York Court of Chancery | 1894

The Chancellor.

The receiver should be made a party to the state’s petition for injunction. The entire assets of the company are in his hands, and he alone is continuing the business of the company. He acts as the representative of the creditors and stockholders of the company, for the purpose of securing to them respectively their debts and the repayment of their capital out of the assets. His position is independent of the corporate entity, so that he cannot, in any sense, be regarded as its agent, and, as such, be bound, in his proceedings, by an injunction issued against the company alone. In order to stay his prosecution of the business, the proper practice is to make him a party to the state’s petition for injunction, first obtaining permission for that purpose from the court whose officer he is. Vanderbilt v. Central Railroad Co., 16 Stew. Eq. 669.

A receiver does not necessarily in every case deal with the corporate entity or its franchise. His duty may be confined entirely to the administration of assets which exist at the time of his appointment. Our Corporation act contemplates two classes of insolvent’ corporations — (1) those of a public character, such as a canal, railroad or turnpike corporation, whose property and work are dependent upon the franchise and in whose continuance the public is interested, and (2) those which are mere private. enterprises, incorporated merely to seeure the franchise which enables the prosecution of a lawful business, and at the same time protects against individual liability and serves convenience in adjusting changes in the ownership of the capital invested. In the former class, the franchise is taken by the receiver, kept alive by performance of corporate duties and ultimately sold. In the latter class, it may be, and, after insolvency, generally is, valueless, and no duty necessarily devolves upon the receiver to care for it. In the latter case, the receiver simply takes the assets of the corporation into his possession, protects them, discreetly reduces them to money and distributes that money as the court directs, first to the creditors, until their claims are satisfied, and then to the stockholders. Vanderbilt v. Central Railroad Co., 16 Stew. Eq. 669, 682.

It follows, as to the first of these classes, from the receiver’s duty to preserve the franchise, that he must pay the franchise tax from year to year until the franchise passes from him. But in the second class, he will pay only that franchise tax which becomes a debt of the corporation prior to his appointment (Rev. Sup. p. 1017 § 6), unless he shall, for any purpose in pursuance of the execution of his trust, exercise the franchise of the company, and then he will pay as long as he shall use the franchise. He cannot sell that franchise, nor will he in any way terminate the entity of the corporation. That entity remains after he takes the assets, until terminated by other power than the receiver, as does the bankrupt man after his property is taken by his assignee, to build up for itself, if that be possible, other assets. At the insolvency the then existing assets are severed from it and appropriated for the payment of the debts of existing creditors fastened upon it (Graham Button Co. v. Spielman, 6 Dick. Ch. Rep. 124), and are not held to answer obligations that may thereafter be incurred by the continuing entity from which they have been severed. I should add, however, that if, after the creditors of such an insolvent corporation have been paid in full, there remains some money to distribute to stockholders, the receiver should pay all franchise taxes assessed after his appointment, before he makes any distribution to stockholders, because it is the capital of the corporation that he then holds, which is pledged to satisfy all obligations of the corporation before it is free to be returned to the shareholders.

What is to be considered an exercise of the franchise of an insolvent corporation by a receiver may vary with the circumstances in each case. Where the ordinary and usual business of the corporation is continued, as in the present instance, at a profit, in the name of the company, by the receiver, in the hope that the financial difficulties may be adjusted and the assets may be restored to the company, there can be little hesitation in concluding that it is the duty of the receiver to pay the tax while he continues the business.

The tax now considered is for the year 1893, and was due when the receiver took possession of the assets. By law it is •entitled to preference in payment. Rev. Sup. p. 1017 § 6. The receiver is abundantly able to pay that tax at once, and he will be directed to do so. He will also pay the costs of the attorney-general’s petition. If necessity therefor should arise, the court will permit the petition to be amended by making the receiver a party to it.