HIGGINBOTHAM, District Judge.
On May 1, 1968, the Spectrum Arena, Inc., (hereinafter referred to as the "Debtor" or the "Spectrum") was involuntarily placed in reorganization under the Bankruptcy Act of July 1, 1898, Chapter X (11 U.S.C. § 501 et seq.). After three years of superb management, the Trustees, Harvey N. Schmidt, Esquire, and William David Webb, Esquire, have so revitalized the business that there are now pending two reorganization plans which through reorganization allegedly would pay all secured and unsecured creditors one hundred percent of their claims; and thus, the Arena could potentially become a viable financial entity.
In corporate reorganizations, trustees are often complimented when they are successful in working out plans which would pay only the secured creditors, it is indeed rare when unsecured creditors are able to get any substantial payment for their claims. Under the Trustees' Proposed Plan which would pay one hundred percent to all creditors, secured and unsecured, there has been a miraculous turnaround in the potential of this presently insolvent business.
Two proposals for reorganization have been filed and fiercely litigated through extensive evidentiary hearings, argument and briefs.
One, as amended, is endorsed and preferred by the Trustees and was proposed originally by Earl M. Foreman and Edward N. Snider (this Plan will hereinafter be referred to as the "Foreman-Snider Plan" or the "Trustees' Plan"). The second plan has been filed by Philip P. Kalodner, Esquire, as stockholder, creditor and counsel for the debtor corporation (hereinafter referred to as the "Kalodner Plan" or the "Debtor Plan").
Three months after the Foreman-Snider Plan was filed, Mr. Kalodner filed his first Plan on June 28, 1971, providing for $7,500,000 financing to be raised through bonds which would be sold by a non-profit corporation. (See Docket No. 153.) On July 23, 1971, in the midst of an evidentiary hearing, he moved to amend his plan to obtain financing in the amount of $8,000,000. Mr. Kalodner's Plan is predicated on an anticipated sale of bonds through Bache and Company for the entire financing of the proposed transaction. He has not made any cash outlay for the ninety-two percent of the debtor's stock which he now purportedly owns.
The Kalodner Plan which I today hold not "worthy of consideration" for submission to the Securities and Exchange Commission, (see pp. 772-778, infra) is his third amended plan. The current Kalodner Plan was filed after this Court held the Foreman fourth mortgage valid. (See Opinion of August 31, 1971, 340 F. Supp. pp. 758-759).
The ultimate issues for this Court's present adjudication are two:
(1) Whether the third amended plan by Mr. Kalodner is "worthy of consideration" for submission to the Securities and Exchange Commission (hereinafter referred to as "SEC") for their review pursuant to § 172 of Chapter X, 11 U.S.C. § 572. See generally, 6 Colliers on Bankruptcy, P7.30, pp. 1257-64, and discussion of the Trustees' Plan, pp. 765-767, Opinion of August 31, 1971.
(2) Since, in my August 31, 1971 Opinion, I found that the Trustees' Plan was "worthy of consideration" for submission to the Securities and Exchange Commission, the second issue is whether the Trustees' Plan is also "fair, equitable and feasible" pursuant to § 174 of the Bankruptcy Act, 11 U.S.C. § 574, and therefore proper for submission to Creditors.
On August 20, 1971, I entered an Order denying Mr. Kalodner's petition to strike the Foreman fourth mortgage claim in the amount of $1,481,969.76 as of April 30, 1971.
As a result of my findings that the Foreman fourth mortgage claim was valid, the Kalodner Plan for reorganization was inadequate and not "worthy of consideration" for submission to the Securities and Exchange Commission because it failed to provide for the payment of the $1,481,969.76 mortgage of Foreman, a preferred creditor. Necessarily by the failure to provide for the payment of $1,481,969.76 to a secured creditor, the unsecured creditors would not under the former Kalodner (Second) Plan have any funds available for the payment of any portion of their debt because the "absolute priority rule" requires total payment to creditors in descending order of lien. (See pp. 779-780, infra.).
On August 20, 1971, when the major proponents of the reorganization plans in issue were before me, I thought that after the arduous three years travail we had drawn the final curtain necessary for my preliminary adjudication for the possible submission of a plan or plans to the creditors and the Securities and Exchange Commission. Counsel were expressly asked whether the record was closed.
At the conclusion of the testimony on August 19, 1971, the following colloquy occurred since I was particularly anxious to make certain that the record would be closed finally to make the prerequisite adjudications for the plans then in issue:
"MR. KALODNER: Based upon that stipulation, I would drop my request for any further testimony on this matter, Sir, eliminate it.