293 N.Y. 159 | NY | 1944
Lead Opinion
In this proceeding under former article XI (now XVI) of the Insurance Law for the liquidation of Lawyers Mortgage Company, the court approved a plan of reorganization which was adopted by the Superintendent of Insurance as liquidator. Pursuant thereto, the liquid assets were transferred to an "Operating Company" and four "Organization Managers" were appointed with authority to purchase the nonliquid assets for disposal through a "Realization Corporation."
On July 23, 1942, the managers made a written offer to buy the nonliquid assets for $4,909,000 and thereupon requested the Superintendent to apply to the court for approval thereof. When he refused, they moved for an order directing him to petition the court for sanction of the sale contemplated by their offer. By *162 our leave, they have appealed to us from an affirmance of the denial of that motion.
In liquidating a delinquent insurer, the Superintendent of Insurance acts as a statutory receiver, — not as a receiver for the court. (Matter of People [Tit. Mtge. Guar. Co.]
Nor is any warrant therefor contained in the plan of reorganization. The provision for transfer of the liquid assets to the "Operating Company" required that the Superintendent should "apply to the court for an order" to that end. Such a direction is missing from the provision for disposition of the nonliquid assets. In that connection, the plan says that "the Reorganization Managers shall request the Superintendent of Insurance to apply * * * for an order authorizing the sale * * * at a price and on terms satisfactory to him and approved by the court." Thus the parties to the plan appear to have deliberately excluded the duty which the managers would now have us put upon the Superintendent.
Though his refusal to consider their offer is not for us to question, his reasons therefor should be noticed. He said: "Since the date of reorganization in 1937, all claims against the company have been determined and a 15% liquidating dividend has been paid to creditors of the company. We are continuing to liquidate the assets as expeditiously as possible and there is no point in now transferring this work to a new corporation." The managers express distrust respecting the good faith of such an attitude but their concern in that regard does not make any question of law.
The order should be affirmed, with costs. *163
Dissenting Opinion
On August 2, 1933, the Superintendent of Insurance was directed to take possession of the property of Lawyers Mortgage Company for the purpose of rehabilitating it. By virtue of this order he was authorized and directed to take such steps toward the removal of the causes and conditions which had made the rehabilitation proceedings necessary "as the court shall direct" (Insurance Law, former § 402). Pursuant to this statutory authority, and upon his suggestion, a committee of creditors was designated at a meeting of creditors called by a Special Deputy Superintendent of Insurance in charge of these rehabilitation proceedings. Many months were spent by this committee in studying the situation and in formulating a plan for the reorganization of Lawyers Mortgage Company. Thereafter, with the approval of the Superintendent, the court appointed a referee for the purpose of conducting hearings upon the plan proposed by the committee and such modifications or other plans as might be submitted for the consideration of the creditors, stockholders and those otherwise interested, including a plan proposed on a companion motion by counsel representing interested parties. (Matter of Lawyers Mortgage Co. [No. 2],
Many hearings were had before the referee and many conferences of attorneys, of the Superintendent of Insurance, the Mortgage Commission and various creditors and stockholders, and it was through participation in these conferences with the Superintendent of Insurance and others that the differences between the parties in interest were finally crystallized and to a great extent eliminated.
After hearings, upon due notice to all parties interested, an order was made by the court under date of September 14, 1937, approving the plan of reorganization recommended by the referee, assuming jurisdiction of the reorganization proceedings and appointing four reorganization managers to supervise the carrying out and consummation of the provisions of the plan. At these hearings, counsel for the Superintendent appeared, raised no objections to the plan and did not question the desirability of its approval. The structure of the plan is indicated by the principal duties imposed upon the reorganization managers, which were four in number: *164
(a) the solicitation of assents to the plan from creditors and stockholders;
(b) the purchase, when sufficient assents had been obtained, from the Superintendent of Insurance of an operating company which had been organized by him and to which liquid assets had been transferred so that it might continue the business of the company in reorganization;
(c) filing and proving before the Superintendent as liquidator of the claims of assenting creditors, the number of which finally amounted to approximately 20,000 separate creditors, holding the amount of approximately 55,000 separate claims, which were finally allowed in the principal amount of over $37,000,000, and
(d) the purchase of nonliquid assets remaining in the hands of the Superintendent of Insurance and the management and liquidation thereof for the benefit of the assenting creditors.
All of the first three of these principal duties of the managers have been successfully accomplished. The operating company was purchased and taken over by the managers on behalf of the assenting creditors as contemplated, after an order had been entered declaring the plan of reorganization operative and effective and after the validity of the plan and the jurisdiction of the court had been sustained in contested proceedings before the court. The managers now represent over 85% of all the creditors.
With reference to the fourth principal duty of the managers, with which we are concerned in this proceeding, it was provided: "TENTH: After the Plan of Reorganization shall have been declared effective, the Creditors' Managers shall determine when a sufficient number of claims filed in the liquidation proceeding have been finally allowed so as to indicate with reasonable certainty the total amount of claims that will be finally allowed against Lawyers Mortgage Company. Thereupon the Creditors' Managers shall request the Superintendent to apply, upon reasonable notice to such parties as the Court may direct, for an order authorizing the sale, in bulk or otherwise, of all or part of the assets of Lawyers Mortgage Company, (except (a) the capital stock of Lawyers Mortgage Guarantee Corporation, the reclassified stock of that company or the Voting Trust Certificates representing the same and (b) such amount of cash or other assets as may be estimated by the Superintendent, and *165 approved by the Court, to be required for the payment of his expenses and of trust claims), at a price and on terms satisfactory to the Superintendent and approved by the Court. * * * The Creditors' Managers shall apply in payment for any such assets purchased by them, the claims assigned to them at their dividend or distribution value, or for that purpose and upon the prior approval of the Court they may borrow money, secure said loans by the pledge of said claims, or otherwise, and to that end may make, execute and deliver any instruments considered necessary or requisite to effect that result."
The provisions of the plan relating to the proof and allowance of claims required the reorganization managers to apply to the court for an order to liquidate the Lawyers Mortgage Company pursuant to article XI (now article XVI) of the Insurance Law. This was done and an order of liquidation was entered. In his application for the order of liquidation the Superintendent referred to proceedings which culminated in the adoption of the plan of reorganization and to the order confirming the report of the referee and approving the plan; also to the fact that the plan contemplated an early determination of creditors' claims "and utilization of the assets of Lawyers Mortgage Company in payment thereof". He referred also to the request received from the reorganization managers to make the application for the order of liquidation and to "incorporate in the order of liquidation appropriate provisions referring to the Reorganization Plan and continuing the Court's jurisdiction over the Reorganization Managers, the Reorganization Plan and the reorganization proceedings until the ultimate consummation thereof." He then stated: "Application is therefore made by your petitioner for such relief", and his prayer for relief was in conformity with these statements. The order of liquidation dated November 17, 1937, was granted by the court in connection with and principally for the purpose of implementing the plan of reorganization so that the identity of creditors and the amount of their claims might be definitely established and the carrying out of the plan thereby facilitated. There was no other proceeding, except pursuant to an order of liquidation, whereby the identity and claims of creditors could have been established, and, without a determination as to the identity of creditors and the exact amounts of their respective claims, obviously no reorganization was possible. *166
The order of liquidation expressly provided "that the Superintendent of Insurance of the State of New York and his successors in office, as Liquidator of Lawyers Mortgage Company, be and he is and they are hereby authorized and directed to proceed with any and all matters contemplated in or provided for by said Plan of Reorganization until such time as the Court shall otherwise direct."
Proceeding precisely in accord with the provisions of the plan for the purchase by the reorganization managers in behalf of the assenting creditors of the assets remaining in the hands of the Superintendent, the reorganization managers made an offer for the purchase of these assets of over $4,900,000, payment to be made in cash or as provided in the provision of the plan above quoted. The Superintendent of Insurance, without giving any consideration to the adequacy of this offer, declined to entertain it because, in derogation of the plan of reorganization approved by the court with his concurrence, he has since decided that the purchase should not be made in behalf of the assenting creditors. The basis of the Superintendent's objection is that such a sale will merely transfer the duties of liquidation from the Superintendent of Insurance to the realization corporation and this he regards as undesirable.
The justice at Special Term went so far as to say: "While in form the offer is one to purchase assets, in reality the object sought to be obtained is the transfer from the Superintendent of Insurance to a Realization Corporation to be managed by Realization Agents, of the duty of liquidating these assets. It calls for the substitution of the judgment of Realization Agents for that of the State Superintendent of Insurance." This is the basic error underlying the decision of the courts below and of the Superintendent.
The same contention was unsuccessfully made by an objecting creditor in the reorganization proceeding and there successfully opposed by the Superintendent of Insurance. (Matter of LawyersMortgage Co.,
Upon this record it must be concluded that the Superintendent, the court, the managers and those interested who assented to the plan contemplated that the Superintendent in making such an election would, in view of his duties as liquidator, consider the adequacy of the purchase price offered by the managers representing the assenting creditors. This he has absolutely refused to do, misconceiving and characterizing the offer made under the express terms of the plan of reorganization as designed merely to transfer the duty of liquidation from himself to the reorganization managers.
We come, then, to the power of a court of equity to deal with this situation. Prior to the enactment in 1909 of section 63 of the Insurance Law (repealed by L. 1932, ch. 191, and re-enacted in article XI of the same statute), the Supreme Court undoubtedly possessed all of the inherent powers exercised by a court of equity in the reorganization of corporations generally, including insurance companies. (Clinton Trust Co. v. 142-144 JoralemonStreet Corp.,
The inherent equitable powers of supervision over the liquidation and reorganization of corporations, including insurance companies, comprehend the consideration of advantageous sales in liquidation of the assets and, insofar as any sales are concerned, former section 421 of the Insurance Law authorizes the Superintendent, as liquidator of an insurance company under former section 404, to sell the assets "subject to the approval of the court". Since this power is expressly subject to the approval of the court it is no broader than the power of the Superintendent of Banks. The only difference between the language of former section 421 of the Insurance Law and the language of section
"The conduct of the liquidation is subject in all its phases to the supervision and control of the court, except in so far as the Legislature may have vested discretionary power in the Superintendent. Save for this, the court in its discretion, may veto the acts of the Superintendent as liquidator, and is vested with a discretion which may override that of the Superintendent." (National Bondholders Corp. v. Joyce,
The same rule applies to the Superintendent of Banks: "We have said that the Superintendent of Banks is in effect a statutory receiver, yet for some purposes the assets in his hands may be regarded as `in custodia legis.' (Lafayette Trust Co. v.Beggs,
This was said in Isaac v. Marcus (
"Perhaps the court may not direct him to bring an action if in his discretion it would not be for the best interests of the banking corporation. That we do not now decide. At least it can issue an order to show cause why he should not bring such an action, or why a stockholder should not be permitted to protect the rights of stockholders by instituting the action vested in him.
"Upon the return of such an order the court can determine whether the Superintendent of Banks is willing and able to protect those rights or whether the equitable jurisdiction of the court may be invoked by the stockholder."
In the recent case of Matter of Bank of United States
(
"If the court has no power except to review the exercise of a discretionary power conferred by the Legislature upon an administrative officer, forcible argument could be made that the court has exceeded its power.
"In truth, however, the power conferred by the Legislature upon the court is far greater. The Superintendent is authorized to sell, or dispose of, the assets of the bank only `upon an order of the Supreme Court.' (Banking Law, §
In this case neither the Superintendent nor any court has exercised any discretion with regard to this proposed purchase of assets for a price of approximately $5,000,000.
The orders should be reversed and the petitioner's motion granted to the extent of directing the Superintendent of Insurance, as liquidator of the company, to consider the adequacy of the offer made by the reorganization managers and thereafter to show cause why an order should not be made and entered herein directing the Superintendent to accept said offer if within a reasonable time no more advantageous offer is received.
LEHMAN, Ch. J., RIPPEY, LEWIS and DESMOND, JJ., concur with LOUGHRAN, J.; THACHER, J., dissents in opinion in which CONWAY, J., concurs.
Order affirmed. *171