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April 3, 1934


The opinion of the court was delivered by: GALSTON

GALSTON, District Judge.

This is an application to confirm the composition offered by the bankrupt following the affirmance by the United States Circuit Court of Appeals, 69 F.2d 41, of the order of Judge Campbell entered January 5, 1934.

The offer in composition is similar to that which was submitted to Judge Campbell, with the exception that there was eliminated from the offer, following the entry of the mandate of the Circuit Court of Appeals, the provision which called upon the bankrupt to pay "such compensation and expenses of the three bondholders committees, of which William E. Kennedy, Jr., J. Lester Fierman, and Frederick S. Robinson are respectfully chairmen, and such fees and disbursements of their respective counsel, including counsel for the Manufacturers Trust Company, in such amounts as the court may fix or approve."

 The modified offer of composition was presented to the creditors before the referee, to whom the case was referred, and he has rendered his report. Creditors, in majority and amount, and in favor of this composition. Total claims are $13,008,038.30.

 Specifications of objections to the composition were filed on behalf of one Homer E. Palmer of San Luis Obispo, Cal., by Samuel M. Brook, Esq., as his attorney. Exceptions to the sufficiency of these specifications were filed on behalf of the bankrupt, and by certain creditors of the bankrupt. The claim of the objecting creditor, Palmer, is $1,049.

 The exception to the first specification is sustained on the ground that the specification does not set forth an act which would be a bar to the confirmation of the composition. It alleges, among other matters, that the bankrupt, prior to the date of the filing of the petitions, entered into a conspiracy with others to defraud creditors of the bankrupt and to conceal its assets and fraudulently to dispose of the same and to put through a composition not for the best interests of creditors. But there are no facts alleged which would fairly apprise the bankrupt of the charge made. The allegations are vague and indefinite.

 The second specification alleges that a fair opportunity was not accorded to these creditors to examine the bankrupt, in that the meeting of creditors before the referee was disorderly; "that bedlam reigned, boos and catcalls, hand clapping, loud and angry discussions and an attempted assault were some of the constant interruptions of the attempt to examine the bankrupt." Testimony taken at the hearing of the offer of composition in open court resulted in a dismissal of this specification for failure of proof.

 The third and fourth specifications set forth that the composition is not in the best interests of the creditors. This composition was twice accepted by a majority in number of all creditors whose claims have been allowed, representing also an overwhelming majority, in amount, of such claims. If the composition were against the best interests of creditors holding claims aggregating $13,008,038.30, one would expect opposition from creditors holding more than an obligation of $1,049. But, aside from the insignificance of this claim, a fair consideration of the merits of the offer leads to the conclusion that it is in the best interests of the creditors. The bankrupt deals in first and second mortgages. The present economic condition of the country in general, and the market in real estate in particular, lead to the belief that, if its assets are to be liquidated on any fair expectation of a return to its creditors and stockholders, they should be liquidated over a period of years, rather than through a forced sale in the present market.

 Accordingly, the exceptions to the third and fourth specifications are likewise sustained.

 Since I find that the composition offer is for the best interests of creditors, that the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar to its discharge, and since the offer and its acceptance appear to have been made in good faith, as provided for in section 12 of the Bankruptcy Act (titel 11, U.S.C., § 30 [11 USCA § 30]), and not by means of any promises or acts therein forbidden, the composition is confirmed.

 There remain for consideration the important questions of proposed allowancs to the referee, the receivers, and some miscellaneous allowances.

 The referee has calculated his commissions on the basis of $13,008,038.30. To this, both the bankrupt and creditors object. The question involved turns on an interpretation of section 40 of the Bankruptcy Act (title 11, § 68, U.S.C. [11 USCA § 68]). That section provides that the compensation of the referee is to be "one-half of 1 per centum on the amount to be paid to creditors upon the confirmation of a composition."

 It is contended, on the one hand, by the referee that the amount to be paid to creditors is 100 per cent. of their claims; and, since the amount of these claims is $13,008,038.30, he asserts that he is entitled to $65,040.19. Those in opposition say, on the other hand, that the only amount to be paid to creditors upon the confirmation is 15 per cent., not 100 per cent.

 I am unable to agree with either of these positions. Under the terms of the composition, the creditors are to receive 15 per cent. in cash, and (with the exception of five creditors holding claims aggregating $208,133.90 *fn1" ) are to retain their bonds under certain modifications thereof which are to be indorsed upon those bonds. The offer in composition says: "The remaining eighty-five per cent (85%) of the amount on which said fifteen per ...

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