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July 8, 1971


Ryan, District Judge.

The opinion of the court was delivered by: RYAN

RYAN, District Judge.

The debtor, Hudson & Manhattan Corporation (H&M), has petitioned for an Order authorizing and directing it to pay an initial liquidating dividend to its shareholders of approximately $40,998,923.71. I have concluded that the entry of such an order is required by the terms of the plan of reorganization and is a step in the consummation of its provisions.

 An involuntary petition for reorganization of Hudson & Manhattan Railroad Company pursuant to Chapter X of the Bankruptcy Act was filed on August 11, 1954 by three bondholders of the Debtor. Later, on December 14, 1954, this Court approved the involuntary petition and appointed a Trustee of the Debtor.

 The Plan of Reorganization, confirmed by the late Judge Archie O. Dawson in 1959 (Order No. 430), provided for the amendment of the certificate of incorporation of the Debtor, changing its name to "H&M" and making it a means of accomplishing the provisions of the Plan and providing also for the vesting of the Debtor's railroad properties in a newly organized Hudson Rapid Tubes Corp. ("HRTC"), and a wholly-owned subsidiary of H&M. Both corporations, "H&M" and "HRTC", were vhicles created for carrying out the Plan of Reorganization, which provided for their liquidation and dissolution upon distribution of their net assets to stockholders.

 Article IVB(3) of the Plan requires the distribution of the proceeds from the sale and liquidation of all of HRTC's assets to the stockholders of H&M.

 On December 22, 1961, Judge Dawson entered an order directing consummation of the Plan by January 1, 1962 (Order No. 518). Thereafter, and on September 1, 1962, substantially all of the property of both HRTC and H&M was taken in condemnation by the Port Authority Trans-Hudson Corporation and awards later made and collected. For the property of HRTC, which essentially comprised the railroad or "tubes" holdings of the Debtor, an award was made in the principal sum of $41,000,000, together with interest thereon of $12,102,304.

 In December 1968, the claim of Hudson & Manhattan Corporation for condemnation compensation for its realty holdings vested by PATH, was settled and adjusted for $11,000,000. The total cash funds available for distribution under the Plan should total approximately $63,000,000 after settlement of accounts and all adjustments are made.

 I entered a Final Decree on May 19, 1965, which, inter alia, deemed the Plan substantially consummated except for the distribution. This has been delayed by questions relating to H&M's tax liabilities for past years, legal fees due condemnation counsel, and allocation of income and expenses as between classes of H&M stockholders. These questions now have been resolved.

 By order dated May 5, 1971, I authorized and directed H&M to file an accounting not later than June 1, 1971 of its financial activities during the period January 1, 1962 up to and including December 31, 1970, and further directed that this accounting be made available for inspection at the office of H&M and in the office of the Clerk of this Court. A further order providing for the giving of notice of the filing of the accounting and for proceedings concerning hearings on objections, if any, was entered June 18, 1971.

 Pending final settlement of this accounting, H&M has petitioned for permission to make an initial distribution of $40,998,923.71 to its stockholders.

 Some few H&M stockholders have appeared to oppose this petition on the ground that such a cash distribution will have unfavorable tax consequences to them and that a merger of H&M into another business entity might entail tax benefits to some stockholders if it were qualified as a tax-free reorganization under the Internal Revenue Code. Indeed, a merger proposal made by Madison Fund, Inc. was considered by the H&M Board on May 24, 1971, but it was not adopted. This proposal was without prior approval by this Court and was not in accord with the approved Plan of Reorganization.

 It is important to pause here to note some of the recitals in Order No. 518, entered by Judge Dawson on December 22, 1971, which directed consummation of the Plan.

1. A certificate of amendment to Certificate of Incorporation of the Debtor, changing the Debtor's name to Hudson & Manhattan Corporation, had been filed in New York and New Jersey (Order No. 455).
2. Hudson Rapid Tubes Corporation had been incorporated in Delaware, filed in New York and New Jersey and authorized to do business in New ...

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