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July 2, 1937


The opinion of the court was delivered by: GIBSON

On July 14, 1936, the debtor filed a petition under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. After approval of the petition, the debtor was allowed to remain in charge of its principal asset, an apartment house in Pittsburgh. On August 19, 1936, a joint plan of reorganization was filed by the debtor and the Real Estate Bondholders Protective Committee. This committee was organized in New York in 1932 for the protection of bondholders covering real estate issues underwritten by S. W. Strauss & Company.

Under the plan before the court the first mortgage bondholders are to receive for each $100 of principal of their bonds $100 in principal amount of new bonds and $3 in cash. The amount of cash is to be paid from the accumulated, earnings of the property now in the hands of the trustee under the mortgage. The new bonds are to bear interest at the rate of 3% so long as the outstanding bonds exceed $150,000, at the rate of 3 1/2% until the outstanding issue is $100,000, and at the rate of 4% thereafter. No provision is made for the payment of back interest upon the old first mortgage bonds, upon which the interest rate was 6%.

 The holders of the present second mortgage bonds, by the plan, are to receive in lieu of their holdings, 200 shares of preferred stock of the new company having a par value of $100. This stock is to bear non-cumulative dividends, payable annually at the rate of 2% out of net earnings; but no dividends are to be paid until all the new bonds are retired. The second mortgage bonds amount to $20,000.

 Unsecured creditors have claims which amount to about $20,000, and they are to receive 100 shares of the new preferred stock and 200 shares of the new common stock having a par value of $50.

 The present stockholders have 1360 shares of common stock, and the plan gives them a like number of shares in the new company. No provision for new money appears in the plan. So long as 50% of the new bond issue is outstanding, the stock going to present stockholders is to be deposited with the trustee under the mortgage to secure the obligations of the debtor, and in event of default the trustee acquires title to it. Upon retirement of 50% of the issue, the stock is to be delivered to the stockholders.

 The plan further provides that earnings in excess of taxes, expenses and interest on the mortgage shall be paid to the trustee, who shall use the fund to purchase mortgage bonds for cancellation at the lowest price obtainable, but not in excess of par value.

 Before the fairness and feasibility of the plan may be considered, several issues collateral thereto must be decided. The first is the value of the debtor's property. Three appraisers were appointed by the court, none of whom was named at the suggestion of any party in interest. After they had returned a valuation of $194,600 upon the land, building and furnishings, and exceptions were filed to their report, several of the appraisers and others were called as witnesses as to value. The testimony fairly establishes as correct the value returned by the appraisers. In addition to the real estate, cash in the possession of the trustee amounted to about $22,300. Accepting the total value of the assets of the debtor as about $216,900, as the court does, it is plain that the debtor is insolvent -- and insolvent to the extent that its assets are insufficient to meet its indebtedness upon its first mortgage bonds. The total first mortgage bond issue amounted to $203,500. Interest thereon was due from July 15, 1933, to May 6, 1937, in amount $46,600.74. In addition to the first mortgage indebtedness was a second mortgage indebtedness on May 6, 1937, with interest, of $24,600; and unsecured indebtedness and taxes amounted to an additional $25,000.

 This condition of insolvency will later be considered.

 Another issue which has arisen in the proceeding is based upon the contention of certain interveners that the plan has not been approved by a sufficient proportion of the only creditors in interest, the first mortgage bondholders.

 Under the statute two-thirds of the first mortgage bond issue, $135,666.67, was required to assent to the plan before the approval of the court could be given to it. Holders of bonds aggregating in amount $29,900 were deposited with the Clerk of the Court and voted in favor of the plan. Concerning these bonds no question has arisen. The Real Estate Bondholders Committee voted $119,600 of bonds deposited with it, and certain of these bonds, interveners allege, were improperly cast in favor of the plan, and were needed to make up the percentage required by section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207.

 All of the bonds voted by the Bondholders Committee were held by it under a deposit agreement. Messrs. Falk and Frank had certificates of deposit from the Committee for first mortgage bonds aggregating $13,600, and, upon submission of the plan to the certificate holders by the Committee, had filed their dissent thereto. Subsequently the Falk and Frank certificates were transferred to Elmer Breyer, one of the interveners, who notified the Committee of his desire to withdraw the bonds. Notified that he could do so, if he paid $680 in twenty days, he obtained a certified check for that amount, but failed to deliver it within the period fixed by reason of absence of the agent of the Committee. Upon tender after the twenty-day period, the delivery of the bonds was refused. After the refusal the bonds were voted in favor of the plan.

 Frank G. Freyvogel held certificates of deposit for bonds aggregating $6,100. He, in the vote inside the Committee, dissented to the plan, but did not withdraw his bonds.Not having done so, his petition to intervene in this proceeding in opposition to the plan was denied. His bonds were voted in favor of the plan by the Committee.

 The Investors' Management Corporation, which represented bonds and certificates of deposit of the Committee in amount of $27,000, intervened in opposition to the plan. It does not appear in the record what ...

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