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IN RE ALLIED OWNERS' CORP.

September 12, 1933

In re ALLIED OWNERS' CORPORATION


The opinion of the court was delivered by: MOSCOWITZ

MOSCOWITZ, District Judge.

There is presented for determination herein two petitions for review of the order of the referee disapproving the election of William M. Greve as trustee in bankruptcy. Inasmuch as both petitions for review are predicated upon the same alleged error and seek the same ultimate relief, they shall be considered and discussed herein as a joint petition.

On the 8th day of August, 1933, a petition in bankruptcy was filed by the Allied Owners' Corporation, and thereafter pursuant to such petition it was duly adjudged a bankrupt and the proceedings were referred to the referee herein. A first meeting of creditors was held on the 21st day of August, 1933, before the referee, at which time an adjournment was requested in behalf of the Reconstruction Finance Corporation, a holder of notes of the bankrupt in the principal sum of $1,200,000, in order that the selection of trustees in bankruptcy might be submitted to the directorate of the Reconstruction Finance Corporation at Washington. Thereupon the meeting was adjourned until August 25, 1933.

 At the adjourned first meeting of creditors a majority in number and amount of the creditors were present or represented, whereupon the referee proceeded with the election of trustees. However, before any nominations were offered, the referee made the following statement (S.M. 21-23):

 "The Referee: Gentlemen, are we ready to proceed with the election of a trustee in this matter?

 "Before we do, I want to make this statement that of course, under the Bankruptcy Act the creditors have the right to appoint a trustee or trustees, and that is their exclusive right, and in the event they neglect to do it then the court appoints the trustees.

 "There is a further provision of the general orders of the United States Supreme Court No. 13, that the appointment of the trustee is subject to the approval or disapproval of the Referee or Judge. So that after you by a majority in number and amount of claims appoint your Trustee it is necessary for me then to approve or disapprove of the appointment.

 It is my desire that the creditors have every discretion in the matter of exercising their power in the appointment of a trustee, and it is the question of each individual named by them as to his, in my opinion, being fitted as a trustee, and I will either approve or disapprove it.

 "But, irrespective of any individuals you might name, -- and this has arisen in the past so I make the statement now so that we won't go through any unnecessary work here in selecting trustees, -- namely, that we will not approve the appointment of any trustee or trustees who have participated in or are connected with the transactions and affairs of the bankrupt, for the reason that such person would be a part of and would represent an interest adverse to the creditors. Now, I hope that I have made that clear. In other words, if someone got up and nominated the president of the bankrupt corporation and all the creditors voted for him I would not approve it. That is not restricted to the persons who may be officers or directors or stockholders of the corporation but it goes to the extent of anyone who has accepted or had responsibility for what the corporation in the past has done or had not done in connection with its affairs.

 "Is there anyone that wants to ask any questions about that? We are ready to receive nominations for trustee or trustees?"

 At the conclusion of the referee's preliminary statement the attorney in fact for the Reconstruction Finance Corporation nominated William M. Greve, a prominent business man, Hon. Stephen Callaghan, a former Justice of the Supreme Court of the State of New York, and Percival E. Jackson, an attorney, as cotrustees in bankruptcy.

 Thereupon Hon. Charles H. Kelby, a former Justice of the Appellate Division of the Supreme Court of the State of New York, and one of the receivers of New York Investors, Inc., the owner of all of the stock of the bankrupt, taking cognizance of the referee's preliminary statement with respect to the disapproval of certain parties as trustees and in a desire to fully disclose to the court the entire situation with respect thereto, stated as follows (S.M. 23-28):

 "Judge Kelby: I am one of the receivers of the New York Investors, and they own all of the stock of this subsidiary.

 "* * * The only reason at all that I have taken the floor here is that I have intended, with my associate, Mr. Kelsey, to vote as a creditor of this corporation in favor of the nominations just mentioned. * * * Now, I noted your Honor's statement about people in interest would not perhaps receive ...


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