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IN RE SEATRADE CORP.
May 4, 1966
In the Matter of SEATRADE CORPORATION, Kulukundis Maritime Industries, Inc., et al., Debtors
The opinion of the court was delivered by: CROAKE
This is a motion by the Government to confirm the Report of the Hon. Edward J. Ryan, Referee in Bankruptcy, acting as Special Master, filed February 9, 1966, recommending that the application of the Government for an order directing consolidation of the captioned proceedings into a single proceeding, merger of the assets and liabilities of all the debtors and amendment of the title of the proceedings accordingly, be granted. A three-day trial before the Referee was held; the direct case of the Government consuming the majority of this time.
Papers in opposition to the instant motion have been filed on behalf of the Chemical Bank New York Trust Company, as trustee for bondholders, and also by counsel on behalf of various wage claimants, Seafarers Welfare Plan, Seafarers Vacation Plan, et al.2 The trustees support the application of the Government and request certain minor alterations in conclusion of law #2. Oral argument was requested by the two objectants and a hearing upon the Report was held before the undersigned on April 13, 1966.
The facts, in summary, as found by the Referee, are as follows:
The debtors, who were all in the shipping business, were almost entirely owned, either directly or indirectly, by Manuel E. Kulukundis (hereinafter Kulukundis) and his wife.
They were operated with a frequent disregard of the usual corporate formalities and with essentially one administration.
The operation was also as a single economic unit with essentially one pool of funds.
Debtors obtained funds from each other without the usual legal formalities.
There were transfers of assets from debtor companies to each other without consideration.
There was satisfaction by debtors, as well as by Kulukundis himself, of each other's obligations to third parties.
So also, there were frequent guarantees by the debtors, and also by Kulukundis, of each other's obligations.
All of the debtors were treated from an accounting standpoint as one company.
Hence, it would be unreasonable in terms of cost and time to separate the companies and indeed such task would be a practical impossibility.
Even were the contemplated audit steps undertaken, there would be no guarantee that the situations of the debtors would be fairly reflected by the books.
Were the assets and liabilities of the debtors to be merged, a complete audit would not be necessary.
Finally, it was found that "no specific instances could be shown to demonstrate that particular creditors would be unfairly dealt with on a consolidated basis," and that "no substantial evidence was adduced to support the contention that the assets of the Title XI companies should be deemed assets of the debtor-corporations."
The following conclusions of law, as proposed by the Government, were made:
"1. The Court has jurisdiction to consolidate proceedings and merge assets and liabilities of the Debtor Companies. Stone v. Eacho, 127 F.2d 284 (4th Cir.) [petition for rehearing denied, 128 F.2d 16 (1942)], cert. denied 317 U.S. 635 [63 S. Ct. 54, 87 L. Ed. 512] (1942). See also In re Todd Bldg. Corp., 172 F.2d 254 (7th Cir. 1949). Cf. Soviero v. The Franklin National Bank of Long Island, 328 F.2d 446 (2d Cir. 1964).
"2. The Debtor Companies were operated as a single economic unit; their funds were pooled; their assets were used indiscriminately to provide funds for each other or to secure each other's obligations; from a formal corporate and financial standpoint their separate corporate entities were [frequently] ignored; from an accounting standpoint, they were one company; therefore, [for purposes of these reorganization proceedings and any ensuing proceedings involving the Debtor Companies under the bankruptcy laws] their separate corporate entities should be disregarded and their assets and liabilities merged. Soviero v. The Franklin National Bank of Long Island, supra; In re Pittsburgh Rys. Co., 155 F.2d 477 (3rd Cir. 1946); Stone v. Eacho, supra; Fish v. East, 114 F.2d 177 (10th Cir. 1940).
"3. Although no fraud or hindrance to creditors need be shown in the organization of the companies, Soviero v. The Franklin National Bank of Long Island, supra; In re Plymouth Dyeing Co., 323 F.2d 134 (3rd Cir. 1963), the facts here amply demonstrate the harm to be suffered by creditors unless the assets and liabilities are pooled and the inter-Debtor Company debt eliminated.
"4. No evidence has been introduced which tends to prove which creditors, if any, might be adversely affected by the proposed consolidation and the extent, if any, of such alleged harm. Cf. Hollander v. Henry, 186 F.2d 582 (2d Cir. 1951).
"5. The assets and liabilities of the Debtor Companies should be merged and the proceedings consolidated ...
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