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IN RE JANSON STEEL & IRON CO.

DISTRICT COURT, E.D. PENNSYLVANIA


November 6, 1942

In re JANSON STEEL & IRON CO.

The opinion of the court was delivered by: KALODNER

KALODNER, District Judge.

The debtor, Janson Steel and Iron Company, filed a petition on February 15, 1938, seeking reorganization under Section 77B of the Bankruptcy Act, as amended, 11 U.S.C.A. § 207.

The business was operated by the debtor in possession until January 11, 1941, when disinterested trustees were appointed by this Court.

 A proposed plan of reorganization has been filed pursuant to Section 169 of Chapter X of the Bankruptcy Act as amended, 11 U.S.C.A. § 569. This plan was developed by the trustees in conjunction with the officers of the debtor company.

 The principal features of the plan are as follows:

 Payment in full of priority claims, consisting of administration expenses, obligations of the debtor while it was in possession of its assets and obligations of the trustees, taxes, wage claims entitled to priority (these have been paid in full with the exception of $2,258 found to be due under the Wage and Hour Law), and any other claims which it is found by the Court are entitled to priority; payment of all unsecured creditors in excess of $500 of 70 per cent of their claims in the following manner:

 Ten per cent in cash upon consummation of the plan, and 60 per cent by the payment of 70 per cent of the net annual earnings each year, the entire balance of 60 per cent to be paid within five years from date of consummation of the plan, and to remain a liability of the debtor; unsecured claims of $500 or less to receive 70 per cent in cash upon consummation of the plan.

 The First Columbia National Bank, of Columbia, Pennsylvania, is both a secured and unsecured creditor. The debtor created a bond issue in the sum of $65,000, secured by a mortgage of which the bank is the indenture trustee, covering its land, buildings, machinery and equipment. Twenty-three thousand dollars of said bonds are held by the bank as trustee for the Janson Estate; $42,000 of said bonds are held by it as security for indebtedness to it in the amount of $70,061 (see certified public accountants' report filed in these proceedings, Balance Sheet June 30, 1942), making it an unsecured creditor in the sum of $28,061. The plan provides for payment of interest in cash to the bank, as trustee for the Janson Estate, on the $23,000 of bonds held by it up to and including February 15, 1938, the date when the petition for reorganization was filed, in the sum of $6,152.50, plus interest from February 15, 1938, to the date of consummation of the plan; the payment of $1,888.38 in cash, representing interest due to the bank on $42,000 of bonds held by it as security for the indebtedness of the debtor to the bank, to February 15, 1938, while the payment of interest on the $42,000 of bonds from February 15, 1938, to consummation of the plan, as well as the principal of the mortgage of $65,000, is to be extended for five years from the time of consummation of the plan, subject to the condition that an amount equal to 20 per cent of net earnings of the debtor company be applied each year, first toward payment of interest on $42,000 of bonds from February 15, 1938, to date of consummation of the plan, and second, to reduction of the principal. Interest accruing after date of settlement to be paid currently.

 All stockholders of the debtor are to retain their stock as presently held by them.

 The Court is to retain jurisdiction of the debtor to the extent necessary to carry out the plan with respect to the payment of net profits to unpaid general unsecured creditors, and for this purpose to appoint three trustees, one to represent the debtor company, one to represent the secured creditors, and one to represent general unsecured creditors, to supervise the operation of the business of the debtor company until the general unsecured creditors receive payment of the balance of the amount to be paid them under the provisions of the plan.

 Sections 169, 171 and 174 of Chaptcr X of the Bankruptcy Act as amended, 11 U.S.C.A. §§ 569, 571 and 574, impose upon the Court the duty, after a plan hs been filed, to fix a time for a hearing on such plan, and for the consideration of any objections which may be made, the giving of notice of said hearing, and the entry of an order approving the plan, or plans, which are fair, equitable and feasible, so that they may be submitted to the creditors for their action.

 In pursuance thereof, I referred the proposed plan to a Special Master for the aforesaid purposes, and to report his findings and recommendations in respect thereto. The Special Master held a hearing, at which time objections were offered to the plan by several creditors. He filed his report, wherein he found that the plan complies with Section 216 of Chapter X of the Bankruptcy Act as amended, 11 U.S.C.A. § 616, and averred that said plan was fair, equitable and feasible, and recommended that it be approved by the Court.

 Elezear Winakur, a creditor, filed objections to the Special Master's report, and hearing was had on his objections. After the said hearing the matter was again referred to the Special Master to consider and take testimony upon certain questions which had not been considered at the previous hearing, to wit, whether the $65,000 mortgage to secure the bond issue was a valid lien, whether the assignment of said bonds to the bank as collateral security was lawful, and whether the payment of interest to the bank as trustee under the indenture of trust, as set forth in the plan, was proper and legal. The Special Master held another meeting pursuant to such reference and found that the assignment and transfer to the bank, both as trustee for the Janson Estate and to it in its banking capacity, was lawful, and that the payment of interest to the bank as trustee under the indenture of trust, as set forth in the plan of reorganization, is proper and legal. He recommended the dismissal of the exceptions and the confirmation of his report approving the plan of reorganization. The same creditor again filed exceptions to the second report of the Special Master, and a hearing was held by me on the said exceptions.

 Both sets of exceptions may be briefly summarized as follows:

 1. That the plan is unfair in that upon liquidation general unsecured creditors would receive a dividend of 50 per cent, and if no liquidation takes place the present accumulated profits entitle the general creditors to an initial dividend of 25 per cent;

 2. That no part of the cash or current assets should be utilized for the purpose of making any payment to secured creditors, that is to say, that the interest to be paid to the bank as indenture trustee of the mortgage, under the provision of the plan, is illegal;

 3. That the bond issue of $65,000 assigned and transferred to the bank was contrary to the Constitution and laws of the Commonwealth of Pennsylvania;

 4. That the provision in the plan for retention of jurisdiction by this Court, and the appointment of trustees, is not necessary;

 5. That the plan is not as contemplated by the provisions of the Chandler Act.

 In the light of these exceptions and the report of the certified public accountants filed with me, is the plan fair, equitable and feasible? The last audit of the certified public accountants filed in these proceedings was a report of the affairs of the debtor company as of June 30, 1942. The audit discloses current liquid assets as follows: Current Assets: Cash on hand $ 13.08 Cash on Deposit in First Columbia Na- tional Bank 30,307.57 Accounts Receivable $35,228.05 Less: Provision for Doubtful Accounts 735.00 34,493.05 Inventories: Finished Goods $14,577.30 Scrap Metal 103,538.70 Supplies 14,791.55 Cinders (Book Value $5,440.- 30 less Reserve of $ 2,940.30 2,500.00 135,407.55 Marketable Securities -- 100 Shares of the Aviation Corp. (Market Value June 30, 1942) 275.00 Accounts Payable -- Debit Balance 39.47 Total Current Assets $202,535.72 Fixed Assets: Land $ 6,000.00 Buildings $85,378.29 Machinery and Equipment 174,444.67 Total Depreciable Assets 259,822.96 Less: Reserves for Depreciation 138,408.22 121,414.74 Net Fixed Assets $127,414.74 Deferred Charges and Other Assets: Unexpired Insurance Premium $ 1,786.73 Prepaid Real Estate Taxes 108.06 Class "B" Preferred Stock -- Lancaster Iron Works, Inc. 20.00 Notes Receivable -- Originat- ing Prior to February 16, 1938 -- See Notes Discounted -- Countra 19,161.00 Total Deferred Charges and Other As- sets $ 21,075.79 Total Assets $351,026.25 Current Liabilities (Incurred after February 15, 1938): Accounts Payable $ 23,009.35 Accrued Salaries and Wages 5,252.14 Accrued Expenses -- Schedule 1 1,906.03 Accrued Taxes 19,238.62 (Schedule 2 -- Note B) $39,238.62 (This includes taxes in the amount of $20,000 set up for the year 1942, and which is not payable until 1943.) Wages Payable -- Arising from Claim Under Wage and Hour Law 2,258.00 Accrued Interest on Mortgage Bonds of $23,000 6,210.00 Accrued Interest on Notes Payable of $50,000 13,743.00 Total Current Liabilities $ 71,617.14 Liabilities Incurred Prior to February 15, 1938: Taxes $ 10,185.93 Notes and Accounts Payable -- Trade 111,686.50 Mortgage Bonds Pay- able $65,000.00 Less: Treasury Bonds Pledged with Bank as Col- lateral for Notes Payable 42,000.00 23,000.00 Accrued Interest on Mort- gage Bonds 6,152.50 Notes Payable -- First Colum- bia National Bank -- Note (A) 50,900.00 Accrued Interest -- First Co- lumbia National Bank 1,888.38 Notes Receivable Discounted -- See Contra 19,161.00 Advances by Officers and Oth- ers 25,140.00 Total Liabilities Incurred Prior to February 15, 1938 $248,114.31 Total Liabilities $319,731.45

19421106

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