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IN RE COLE

February 10, 1950

In re COLE. In re ROSSMAN


The opinion of the court was delivered by: BYERS

The questions presented by these petitions to review the orders of a Referee in Bankruptcy, denying discharge, are identical and will be treated in one opinion. Reference to Cole as an individual herein is to be interpreted likewise as to Rossman in the second proceeding.

This bankrupt was treasurer and one of the two officers (Rossman was president) of Glorian Distributors, Inc., the debtor in a Chapter XI reorganization in this Court, according to Petition filed May 19, 1947, as to which a plan was confirmed by Referee's order of April 18, 1948.

 The presently material provisions thereof involved the payment of 15 per cent. in cash to creditors, and 25 per cent. ($ 25,139.90) in five notes of 5 per cent. each, bearing the indorsement of this bankrupt and the president Rossman, the first being due October 18, 1948. By the terms of the order, jurisdiction of the Court was in terms continued 'until the fulfillment of the obligations to be performed by the debtor'. None of the notes was ever paid.

 The cash in bank at the time of the order of confirmation was $ 12,616.59, which was increased by the additional of $ 252.01, a total of $ 12,868.60, or about ten times the amount which would be required to meet the first of the five per cent. notes.

 Between May 1, 1948, and September 22, 1948, the entire cash (all but $ 1.16) was taken by this bankrupt and the other for their personal uses, and on October 21, 1948, they filed their respective individual petitions in bankruptcy, disclosing in effect no assets.

 The Trustee filed specifications of objection to each discharge:

 1. Failure to keep books.

 2. (A) Fraudulent appropriation, etc., of property belonging to the debtor Glorian Distributors, Inc., 'while the bankrupt occupied the status of an officer of this Court'. The items are set forth.

 (B) With intent to defeat the Bankruptcy Act, he received a material amount of property from the said debtor, Glorian Distributors, Inc., while it continued under the jurisdiction of this Court according to the said order of confirmation; five items described in 2(A) being listed.

 (C) 'In contemplation of proceedings under the Bankruptcy Act against the above said Glorian Distributors, Inc., and with intent to defeat the Bankruptcy Act, the bankrupt transferred property of the said Glorian Distributors, Inc. (which) consisted of all of the items of property enumerated in sub-paragraph A of this specification of objection 2'.

 There apparently is no dispute as to the facts, which are more completely stated in the Referee's opinion denying discharge and upholding specifications 1, 2(B) and 2(C).

 The errors urged in behalf of the petition for review are addressed to each of the above.

 As to specification 1, it is urged that, since the bankrupt became a salesman during 1948, namely, a wage earner, his failure to keep books is not to count against his discharge. It appears from the testimony that he took employment as a salesman in September, 1948, which continued to be his occupation until the hearing of July 7, 1949. The taking of funds of Glorian began as soon as the order of confirmation was signed and continued until there was nothing left of the debtor's money. To argue that he was not required to keep books as to those funds, is to ignore the debtor proceedings of the Glorian corporation and the responsibility in connection therewith that attached to the two officers; also to ignore the individual obligation which he assumed by indorsing the notes which formed part of the arrangement, but which he has been careful to recognize by including all holders thereof as his creditors in this proceeding; the Trustee, and those creditors are entitled to know from his books and records, what he did with the money he so siphoned from the corporate reservoir, and his failure to maintain such records deprives ...


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