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IN RE GREENEBAUM BROS. & CO.

October 17, 1945

In re GREENEBAUM BROS. & CO., Inc.


The opinion of the court was delivered by: KALODNER

Two petitions arising out of the Referee's final order of distribution of the bankrupt estate of Greenebaum Bros. & Co., Inc., have been presented for disposition. The one, a petition for review, was filed by the Executrices of the estate of Simon Greenebaum and asserts three alleged errors in the final order. The other is a petition of the bankrupt corporation filed by one of its attorneys, for leave to intervene.

The Trustee not only disputes the alleged substantive errors of the Referee, but denies the standing of the Executrices to question the Referee's order, and denies the right of the bankrupt to intervene at this time.

 The executrices of the estate of Simon Greenebaum unquestionably stand in no better position than their decedent with regard to the right to petition this Court for review of the Referee's order. The right is asserted on the ground that Simon Greenebaum was the owner of all the outstanding stock in, and that he was the creditor of, the bankrupt corporation.

 During his lifetime, Simon Greenebaum filed two proofs of claim against the bankrupt, one, for $ 65,000, was filed as a preferred stockholder's claim for the purpose of Chapter X, 11 U.S.C.A. § 501 et seq., proceedings; another, for $ 16,533.36, was based on the claim of a debt due in the amount of $ 15,000 because the bankrupt failed to call in 50 shares of preferred stock in each of the three years preceding the bankruptcy (1938, 1939 and 1940), plus $ 1,533.36, representing undeclared dividends.

 Granting that Simon Greenebaum was a stockholder, and his estate now in his stead, no right to petition for review obtains thereby. The corporation having been adjudicated a bankrupt, the stockholders have no standing in the bankruptcy proceedings. Donnelly v. Consolidated Investment Trust, 1 Cir., 1938, 99 F.2d 185, 38 A.B.R.,N.S., 105; In re F.P. Newport Corp., Ltd., 9 Cir., 1938, 98 F.2d 453, 37 A.B.R.,N.S., 470, 475; see 8 Remington, Bankruptcy (5th ed.) 3758. This is true even though there may be a surplus available to the bankrupt. In re Witherbee, 1 Cir., 1913, 202 F. 896, 30 A.B.R. 314, 317; Donnelly v. Consolidated Investment Trust, supra.

 Concerning the claims on which the creditorship is based, it should be noted that the Trustee filed objections thereto. Insofar as I can determine, the claims were never proved nor allowed. In his certificate the present Referee stated:

 ' * * * neither of which said claims were allowed by the said then Referee or by me as claims of a party in interest properly filed in this proceeding, entitled to a share in distribution out of the proceeds and funds realized by the Trustee in the liquidation of the bankrupt's assets. * * * '

 A certificate of stock ownership, despite the fact that it contains a redemption clause, does not make the stockholder a creditor of the corporation. Warren v. Queen & Co., 1913, 240 Pa. 154, 158, 87 A. 595; Warren v. King, 1883, 108 U.S. 389, 399, 2 S. Ct. 789, 27 L. Ed. 769. And, as it will be seen, the obligation to redeem cannot be enforced after the corporation becomes insolvent. 14 C.J.,Corporations, p. 424, Sec. 585, 18 C.J.S., Corporations, § 278.

 Moreover, the claims filed must disclose a debt due. In re A. & G. Knitting Mills, Inc., 3 Cir., 1944, 144 F.2d 125. On examination, the claims fail to meet this requirement. The stock certificate here involved provides that called stock be paid out of surplus or net profits, and the Pennsylvania Corporation Law forbids a corporation to redeem stock where such redemption would reduce the remaining assets below an amount sufficient to pay all debts and known liabilities: 15 P.S.Pa. § 2852 -- 705. Also, the stockholder is not entitled to the corporate earnings until a dividend is declared. Green v. Philadelphia Inquirer Co., 1938, 329 Pa. 169, 175, 196 A. 32. Thus, if the claim were provable at all, it would have to disclose, at the very least, facts warranting the redemptions and dividends, aside from showing abuse of discretion by the directors. Wetherill v. Arasapha Manufacturing Co., 1915, 24 Pa.Dist. 1045, 1048; Green v. Philadelphia Inquirer Co., supra. Furthermore, it appears from the face of the stock certificate that it was issued in 1941, subsequent to the bankrupt's asserted failure to redeem (in 1938, 1939 and 1940).

 Accordingly, I am of the opinion that the claims filed by Simon Greenebaum were neither proved nor allowed and the Executrices of his estate have no standing to petition this Court for review of the Referee's order.

 However, because of the nature of the complaints against the Referee's order, I am inclined to dispose of them on their merits. Although three objections were stated in the petition, one, that the Referee erred in turning over the balance of the bankrupt estate to the bankrupt's attorneys, has been withdrawn.

 The petitioners, secondly, object to the action of the Referee in allowing an additional counsel fee to the attorneys for the Trustee. The objection is that the fee allowed is excessive, but it is not contended that the attorneys for the Trustee are not entitled to a 'reasonable' fee. It should be noted that the Trustee's attorneys first suggested the sum of $ 2500. Strikingly indicative of the fairness of the request is a statement made at the final meeting of the creditors by T. G. Rich, Esq., one of the counsel for the bankrupt:

 'I understand that the petition for additional counsel fee for the Trustee was considered before I arrived at the meeting, therefore I should like to have an opportunity to state at this time, as the other counsel for the bankrupt and as counsel for Albert Greenebaum, Jr., vice-president of the corporation, that I have no objection to the allowance and in fact, wish to go on record as stating that we believe counsel for the Trustee has done an excellent piece of work in this case.'

 In point of fact, the Referee awarded a lesser sum ($ 1750), than that suggested by the Trustee's counsel, and his opinion supporting that award is highly persuasive. In his Certificate for Review the learned Referee pointed out the peculiarly successful bankruptcy ...


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