DISTRICT COURT, E.D. NEW YORK
March 31, 1944
In re REALTY ASSOCIATES SECURITIES CORPORATION
The opinion of the court was delivered by: MOSCOWITZ
MOSCOWITZ, District Judge.
The Trustees of Realty Associates Securities Corporation, debtor, have applied to the Court for authorization to file within this proceeding a voluntary petition for the reorganization of Espade Realty Corporation, a wholly-owned subsidiary. The question has been raised as to whether the petition may legally be filed within the parent proceeding or whether it was intended by section 129 of the Bankruptcy Act, 11 U.S.C.A. § 529, merely that a subsidiary might be reorganized before the same court in a separate proceeding.
Section 129 provides: "If a corporation be a subsidiary, an original petition by or against it may be filed either as provided in section 128 of this Act
or in the court which has approved the petition by or against its parent corporation." Section 1(9) of the Bankruptcy Act, 11 U.S.C.A. § 1(9), states that "'court' shall mean the judge or the referee of the court of bankruptcy in which the proceedings are pending." Thus the subsidiary clearly may be reorganized before the same judge who has charge of the parent proceeding; the only inquiry remaining is whether that judge may authorize the filing of the subsidiary's petition within the parent proceeding, or is he confined to considering them as separate matters.
Chapter X, 11 U.S.C.A. § 501 et seq., was enacted to replace 77B of the Bankruptcy Act and the legislative history of section 129 evidences the change which was contemplated with respect to this question. Under section 77B, sub. a, 11 U.S.C.A. § 207, sub. a,
if a corporation of the character therein described desired to file a petition, it was specifically required to file "in the same proceeding." Report No. 1409 of the 75th Congress, 1st Session, dealing with the changes effected by the Chandler Act (Chapter X), states in this respect: "The provision in regard to venue is clarified in respect to a subsidiary; the subsidiary * * * may file a petition in the court, not necessarily in the same proceeding, in which the petition by or against its parent corporation has been approved".
This indicates that Congress intended to remove the restriction under 77B, sub. a that the subsidiary's petition could be filed only in the parent proceeding and to permit the filing of it in the same court but in a separate proceeding in those cases in which the circumstances made that desirable. (See also the proposal of the National Bankruptcy Conference, included in a Judiciary Committee print).
From these discussions, it appears that Congress appreciated the factors which often make it advisable that the subsidiary be reorganized before the same judge who is familiar with the parent proceeding. He is aware of the inter-related rights of all the parties interested in both corporations and economies of administration are thereby made possible. But it was also realized that there might be cases in which the reorganization of the subsidiary would unduly delay the progress of the parent proceeding. In substitution for the former requirement that the subsidiary's petition had to be filed "in the same proceeding", it was therefore enacted in section 129 that the "petition by or against it (the subsidiary) may be filed * * * in the court which has approved the petition by or against its parent corporation." It was never meant to revoke the practice which had previously existed and the omission of the words "in the same proceeding" was intended to remove that restriction and leave it to the discretion of the court whether the reorganization of the subsidiary within the parent proceeding would be desirable in the instant case.
The Trustees of Realty Associates Securities Corporation are authorized to file within this proceeding a voluntary petition for the reorganization of Espade Realty Corporation.