Waco Development Company on May 17, 1935, filed a petition for reorganization under Bankruptcy Act, § 77B (11 U. S.C.A. § 207), on the ground that it was unable to meet its debts as they matured. Besides a little cash it owned only the Roosevelt Hotel in Waco, Tex., and its equipment, put at a value depreciated to $602,361 but now fixed at $725,000; and its indebtedness besides taxes was an issue of negotiable gold notes or bonds securеd by a mortgage on the hotel of $413,000 principal. Notes for $465,000 were originally issued, but $52,000 which matured prior to November 15, 1932, had been paid. $61,000 maturing since were in default. All of the notes are to mature by November 15, 1937. A plan of reorganization was put forth in the petition, of which it is enough for present purposes to say that it involves a lease of the hotel to Central Texas Hotel Company, the establishment of a sinking fund from the income of the hotel, the reduction of interest on the unpaid notes from 6 per cent, to 5 per cent, for five years beginning retroactively November 15, 1934, and a postponement of their maturity until November 15, 1944. This plan, after slight modification, was approved by the District Judge. Its approval turned on the acceptance of it by the class of gold note holders. More than a third of the gold notes, to wit, $149,100, were held by Texas Hotel Securities Corporation. That company, joined by the holder of $12,500 other notes, totaling 39 per cent, of the whole, dissented from the plan. The holders of 8 per cent, failed to appear and vote. The holders of $221,-000, or 53 per cent, of the whole, voted for the plan. The judge held that Texas Hotel Securities Corporation, although entitled to prove its notes and to participate in the results of the plan, had acquired them with the intent of preventing the debtor’s reorganization, and could not vote on the plan, and that its notes were not to be counted as in the class entitled to vote, so that the $221,000 of notes which were voted for the plan were two-thirds of. the whole voting class; but if otherwise that the judge had the right to confirm the plan as fairly and equitably providing protection to the nonassenting minority under section 77B (b) (5) (d) of the act. (11 U.S.C.A. § 207 (b) (5) (d).
Texas Hotel Securities Corporation, joined by the other dissenting note-holder, has taken an appeal as of right under section 25 (a), as amended by Act Mav 27, 1926, § 10, 44 Stat. 665 (11 U.S.C.A. § 48 (a), and also applied for one in the discretion of this court under section 24 (b), as amended by Act May 27, 1926, § 9, 44 Stat. 664 (11 U.S.C.A. § 47 (b). The appellee, Waco Development Company, moves to dismiss the former and opposes the grant of the latter. The judgment appealed from decrees, among other things, “that Texas Hotel Securities Corporation is not entitled on its said bonds and its said claim of $149,100 for the purpose of voting to be considered a creditor whose claim has been allowed, or to vote or use its said claim as an allowed claim in the consideration and determination of the amount of each class of claims which has accepted said plan of reorganization; but the Texas Hotel Securities Corporation is entitled to participate on its bonds in the sum of $149,100 under the plan of reorganization on the same basis as other creditors of the same class”; and it decrees approval and confirmation of the plan. The decree is in the main one approving a plan of reorganization, and as such is not appealable as of right but only in the discretion of this court for revision in matters of law under section 24 (b). Meyer v. Kenmore Hotel Co.,
The denial of votability to the claim of Texas Hotel Securities Corporation is based on the purpose with which it ac-. quired its bonds. The special master who heard the witnesses testify found that the purpose of Hilton, who owns and controls the Securities Corporation, was “to exercise sufficient influence and control in the adoption of any plan for the reorganization of Waco Development Company to have the plan formulated along lines that would afford him an opportunity to recoup certain losses which the Hilton interests had sustained in the Waco-Hilton Hotel (the Roosevelt Hotel) ; that it was the intention of Hilton and his interests in рurchasing said bonds to have the bonds accorded the same treatment as other bonds- and in addition thereto, if possible, to profit in some way as above set out; that the total cost to intervenor (the Securities Corporation) of notes now held by it was at least their par value.” On exception to' this finding the judge found that the Securities Corporation had legal title and that value was paid for the notes, but “with the intention and for the purpose of using-same to prevent and thwart the effort of the debtor Waco Development Company from accomplishing approval and confirmation, of any plan of reorganization under section 77B * * * by voting such block of
33i/2%
of outstanding notes-against any plan proposed and submitted by the debtor.” The substituted finding is. attacked here as unsupported by evidence. The direct evidence of intention is given, by Hilton, who conducted the negotiations,, and by the president and vice president of the Securities Company, who participated.. They all testify that several months before the filing of this petition, in order to recoup in some way a loss that they felt had been unjustly visited upon the Hilton interests in connection with the hotеl, they set about buying at least a third of these mortgage notes in view of a possible reorganization proceeding, and three days before the petition was filed, in co-operation with a capitalist, Greenwood, they bought the notes in controversy at prices ranging from 70 to 85, taking them over from. Greenwood a few days later, and beside-reimbursing Greenwood paying him as had been аgreed an old debt of $25,000 which, he claimed. They all say that they did not intend to block any and all plans, but hoped to force one that would give them: again the operation of the hotel or otherwise reestablish an interest that they felt: they justly had in the property. The circumstances do not authorize a different conclusion. They are these: Waco Development Company in
1928
deeded to-Waco-Hilton Hotel Company (wholly owned by Texas Hotel Securities Corporation) a lot valued at $180,000. The Hotel Company built and furnished the Roosevelt Hotel with $465,000 raised on the mortgage gold notes here in controversy and abour
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$200,000 additional. The hotel but not the furniture was deeded back to Waco Development Company, which assumed the gold notes, and the Hotel Comрany took a ninety-nine year lease on the hotel. It made further extensive improvements not required by the lease. All went well till in 1932 patronage fell off due to the business depression and the lease got in default and a cancellation was threatened. The lessee sought relief in the state court under a Texas moratorium statute on March 20, 1934. A hearing was appointed for April 9th, on whiсh day, upon a cross-petition, the lease was decreed canceled and an arrearage of $17,000 in rents established, with a foreclosure against the furniture. This swift justice was affirmed, Waco-Hilton Hotel Co. v. Waco Development Co. (Tex.Civ.App.)
Therefore Texas Hotel Securities Corporation, which felt that it had a moral right in the hotel properties or perhaps an equity arising out of oppression, in contemplation of this proceeding bought up over one-third of a class of claims m order to have a veto on plans of reorganization; not, however, in malice or to embarrass justice, or surreptitiously to sell its vote, but to force recognition of a supposed right. We are of opinion that this does not authorize the disregarding of these notes as a part of the class to be affected. A debtor corporation, whether insolvent or merely unable to meet its debts as they mature, is not guaranteed by section 77B a right to a reorganization. It is given only the right to present a plan to its creditors and stockholders for their acceptance, with the advantage that the prescribed majorities in the classes affected can control unwilling minorities. No legal wrong is done the debtor if it cannot secure the required consents and is held to its original engagements, for that is but leaving to the creditors their original rights. Nor is it unlawful to transfer claims in anticipation of bankruptcy or during bankruptcy, and the transfer usually does not deprive the claim of any of its incidents. Shropshire v. Bush,
The act, paragraph (b) (5), § 77B (11 U.S.C.A. § 207 (b) (5), however, does recognize an exception to the requirement that two-thirds in amount of an affected class of creditors shall accept the plan when the plan “provide [s] adequate protection for the realization by them of the value of their interests, claims, or liens.” Several means by which such protection is afforded are mentioned which do not obtain here, and finally paragraph (b) (5) (d), § 77B (11 U.S.C.A. § 207 (b) (5) (d), “By such method as-will in the opinion of the judge, under and consistent with the сircumstances of the particular case, equitably and fairly provide such protection.” The decree under review is finally rested on this provision. We do not construe it to authorize the judge to approve any plan which he thinks fair and equitable. If this were intended, the statute could have been made much simpler and shorter. In this case he thought it fair and equitable to reduce the interest, even retroactively, and to extend for seven years or more the maturity of this mortgage debt. But if there had been a single unwilling mortgagee, that plan could not have been constitutionally imposed. Louisville Joint Stock Bank v. Radford,
We are therefore of opinion that the claim of Texas Hotel Securities Corporation has been allowed, and cаnnot be excluded for voting purposes from the class of gold noteholders because of any fact that has been established; that two-thirds in amount of the allowed claims in that class have not accepted the plan proposed; and that the plan does not provide such adequate protection for the realization of the value of claims of that class as will warrant dispensing with their consent.
The judgment confirming the plan is reversed for further proceedings according to law and not inconsistent with this opinion.