The opinion of the court was delivered by: BICKS
I. Lawrence Lesavoy, the alleged sole stockholder of the bankrupt who claims to be an unsecured creditor and the owner of the beneficial interest in a first mortgage on the bankrupt's property, and three companies, allegedly unsecured creditors, controlled by Lesavoy, bring this petition to review an order made by Hon. Irwin Kurtz, Referee in Bankruptcy of this Court, authorizing the trustees in bankruptcy to accept the offer of Charmin Paper Mills, Inc. to purchase for $ 600,000 in cash, free and clear of all liens and encumbrances, all the trustees' right, title and interest in and to the land and pulp and paper mill erected thereon, located at Cheboygan, Michigan, together with the fixtures, machinery, tools and equipment located in or about the premises and all inventory and supplies on hand.
A chronology of the events which led up to the making of said order will provide the background necessary for a proper consideration of the matter sub judice.
A petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., was filed by the now bankrupt on June 3, 1953. The petition was approved and a reorganization trustee appointed.
During the course of the reorganization proceeding applications were made by the trustee upon due notice for leave to sell the debtor's property free and clear of the lien of alleged mortgages thereon, the said lien to be transferred to the proceeds of the sale awaiting the outcome of an action then pending in the United States District Court in the Eastern District of Michigan to determine the validity of the mortgages. These applications were granted without opposition. The trustee did not, however, sell any of the debtor's property except for several items of machinery.
The Chapter X proceeding proved to be abortive. It extended over a period of approximately twenty months without a plan of reorganization being submitted to which the requisite consents were obtained. Accordingly, on February 11, 1955, the Court made an order adjudicating the debtor a bankrupt and directing that bankruptcy be proceeded with pursuant to the provisions of the Bankruptcy Act. On March 18, 1955 Richard Green, Russell Knapp and William Otte were appointed trustees in bankruptcy and duly qualified as required by law. They have continued to act as such trustees to date.
Upon the petition of the bankruptcy trustees the Referee by order dated October 28, 1955 directed (a) that a special meeting of creditors be held on November 15, 1955 to consider an offer to lease the bankrupt's property with an irrevocable purchase option exercisable within eleven months for $ 400,000 free of all liens, or any further or better offers, and (b) that notice of the meeting be published in the Daily News Record at least ten days prior thereto and again on the day of the meeting, and further, that the notice be published in the New York Herald Tribune, Chicago News and Detroit Free Press and any other newspapers or trade publications and at such times as the trustees deem suitable. The trustees duly complied with the publication requirements of this order as well as with the statutory provisions for notice to creditors by mail.
Prior to the special meeting of creditors the Referee, after due notice to all alleged lienholders and without objection, authorized the bankruptcy trustees to sell the bankrupt's property 'upon such terms as may be acceptable to the trustee and to the Court free and clear of all liens of the mortgages of the said property, as well as the liens claimed by the United States Government and the City of Cheboygan, and the claim of Lesavoy Industries, Inc. and that of the receiver of Lesavoy Industries, Inc.' and directed that the liens and claims if any, and to the extent they are valid and enforceable be transferred to the proceeds of the sale.
On the eve of the special meeting the bankrupt filed a petition for arrangement under Section 321 of the Act, 11 U.S.C.A. § 721, and on the very day of the meeting obtained an order from a District Judge staying the administration of the estate other than pursuant to Chapter XI, 11 U.S.C.A. § 701 et seq., until the date fixed in the order for a hearing to determine whether the stay should be made permanent. This order was served upon the Referee as the special meeting was about to be convened. He made public announcement that the sale had been stayed and that the meeting could not proceed as planned. The meeting was adjourned to November 25, 1955. However, with the view of taking advantage of the presence of potential purchasers, but with the express understanding that no commitments of any kind could be made either on the part of the Court or the trustees, the Referee proceeded in an informal fashion to receive bids.
Full details were given concerning the nature and description of the property proposed to be sold. The best offer, submitted by the Charmin Paper Mills, Inc., was to purchase the property free of all liens for $ 600,000 in cash. As evidence of its good faith, the offeror deposited $ 60,000 to be applied on account of the purchase price if the stay were vacated and its offer ultimately accepted.
On November 22, 1955, the return date of the stay application, the matter was referred to the Referee. He proceeded to a hearing as to the desirability of a further stay of the bankruptcy proceedings and the feasibility of a proposed plan of arrangement. Mindful that an extended stay might result in a withdrawal of the $ 600,000 cash offer and that the property was uninsured and badly in need of repairs to protect it against the elements, the Referee granted a stay conditioned upon the filing of a $ 200,000 bond for the protection of the estate and for indemnity against loss thereto or diminution thereof, and the payment of $ 27,000 to be used by the trustees to the extent necessary for the care, maintenance, preservation and conservation of the debtor's physical assets, including custodial services, on or before November 25, 1955. The debtor felt aggrieved by said order and brought on a petition for review. The District Court confirmed the order in all respects except that the time for compliance with the conditions thereof was extended to December 12, 1955.
At the adjourned special meeting on December 13, 1955, the attorney for the trustees noted that the bankrupt had failed to comply with the conditions of the Referee's order as modified by the District Court. The bankrupt then moved for a further adjournment of the meeting which the Referee denied. The Charmin offer was withdrawn and the Referee proceeded with the meeting pursuant to his order of October 28, 1955. After a particularization of the property included in the proposed sale, Charmin Paper Mills, Inc. renewed its offer of $ 600,000 in cash. The amount of the said offer was in excess of the appraisal made by a court appointed appraiser. No higher or better offer was made and accordingly, on December 15, 1955, the Referee entered and order authorizing the trustees to consummate the sale to CHARMIN.
It is this order which is the subject of the present petition for review.
The objections raised by the petitioners in the main are premised on the theory that the sale was a public sale; they have no bearing upon the validity of a private sale. It must be determined, therefore, whether the sale was a public sale authorized by subdivision (1) of General Order in Bankruptcy No. 18 or a private sale within the purview of subdivision (2) of said General Order.
The pertinent statutory provisions relating to bankruptcy sales are:
(1) Section 70, sub. f, of the Act, 11 U.S.C.A. § 110, sub. f, -- real and personal property shall, when practicable, be sold subject to the approval of the Court -- such property shall not be sold otherwise than subject to the approval of the Court for less than 75 per centum of its appraised value -- the Court shall appoint a competent and disinterested appraiser.
(2) Section 58, sub. a(4) of the Act, 11 U.S.C.A. § 94, sub. a(4), -- creditors shall have at least ten days notice by mail of ...