261 F. 894 | 2d Cir. | 1919
The order here sought to be revised provided that the involuntary petition in bankruptcy, filed on the 24th of December, 1918, be dismissed, and that the order of adjudication entered herein on the 7th of January, 1919, and the order dated December 24, 1918, appointing a receiver, be vacated. This order further provided that, after paying the expenses of administration as fixed by the court, the receiver turn over all the property and moneys in his possession to Henry Malkan, Incorporated, a corporation organized under the laws of the state of New York, the assignee of the bankrupt, and, after fulfillment of such decree, the receiver be discharged and his bond canceled.
This order resulted from an attempted composition of the bankruptcy proceedings. The petitioner, a creditor to the extent of $8,000, appeared in opposition to the order sought to be reviewed; but it
In the case of Acme Harvester Co. v. Beekman Co., supra, it was said:
“Every person is forbidden to receive any property after the filing of the petition, with intent to defeat the purposes of the act. These provisions, and others might be recited, show the policy and purpose of the Bankruptcy Act to hold the estate in the custody of the court for the benefit of creditors after*896 the filing of the petition and until the question of adjudication is determined. To permit creditors to attach the bankrupt’s property between the filing of the petition and the time of adjudication would be to encourage a race of diligence to defeat the purposes of the act and prevent the equal distribution of the estate among all creditors of the same class, which is the policy of the law. The filing of the petition asserts the jurisdiction of the federal court, the issuipg of its process brings the defendant into court, the selection of the trustee is to follow upon the adjudication, and thereupon the estate belonging to the bankrupt, held by him or for him, vests in the trustee.”
In Re Lockwood (D. C.) 104 Fed. 794, it was said:
“The parties concerned in adopting this method of settlement took the risk of having its execution interfered with by any additional creditors who might appear within a year and before the provisions of the order were fully executed. _ Such creditors, proceeding regularly within the time limit of the act, are entitled to their day in court, and to their ratable share in any assets not already distributed.”
A composition cannot be entirely successful until the majority of the creditors have accepted the settlement offered. An attempt to avoid the statutory requirements for the composition creates possibilities of wrong to creditors, of which this case is a good example, and when such wrong is called to the attention of the court it should be checked. The sale of the assets of the bankrupt should not be permitted after adjudication, until the sale takes place under the eye and protection of the court. Here the provisions of the order direct the 'disposition of the assets of the estate. It provides that-tire estate in possession of the receiver be turned over to a newly formed corporation, Henry Malkan, Incorporated. Thus the property of Henry Malkan passes from the custody of the court below into a newly created corporation, without regard to the rights of this protesting creditor. Thus providing 'for the disposition of the assets, they are placed by judicial sanction and decree beyond the reach of the protesting creditor. The order imposes no duty or burden upon Henry Malkan, Incorporated, to pay the creditors or to use the res therefor. This corporation may dispose of the bankrupt’s property as it will. The property is disposed of to a third party.- It is not sufficient answer that the petitioning creditor may proceed upon his claim after the dismissal of the proceedings and vacation of the decree, and then follow the assets in the possession of Henry Malkan, Incorporated. The petitioning creditor would be confronted, in such a litigation, with this order, which judicially determines that tire assets be transferred to Henry Malkan, Incorporated, without any provision of trust or otherwise, except in ahsolute ownership. The power to malee and approve compositions is statutory. There is no statute providing that the assets may be disposed of as was done here, or that such an informal composition may be had.
We are therefore of the opinion that the order below was improvidently granted, and must be reversed, and the application denied.
Order reversed.