The opinion of the court was delivered by: BONSAL
Pursuant to Section 247 of the Bankruptcy Act (11 U.S.C. § 647) and Chapter X Rule 10-216 thereunder, a hearing was held before this Court on June 28, 1976 for the purpose of considering applications for interim and final allowances for services rendered to the various debtor corporations by the Trustee, general and special counsel for the Trustee, and the accountants for the Trustee since the start of the Chapter X proceedings in October 1974 through the end of February 1976. Written objections to interim allowances sought by Weil, Gotshal & Manges, general counsel for the Trustee; Anderson Russell Kill & Olick, Special Counsel for the Trustee; and Coopers & Lybrand, accountants for the Trustee, were filed by the Chase Manhattan Bank, N.A., Chemical Bank, as successor to Security National Bank, the National Bank of North America and Citibank, N.A., ("the Banks") as creditors in these proceedings. In addition, the Court received over seventy letters from debenture-holders, shareholders, and general creditors of Investors Funding Corporation in opposition to the applications for allowances. Oral objections to the applications were also made by investors in IFC securities.
The Court granted a request by the Securities and Exchange Commission (hereinafter "SEC") to file its recommendations with respect to the allowances on or before July 20, 1976. In addition, the Banks were given to July 20, 1976 to file memoranda of law in support of their formal objections. The applicants were given until August 9, 1976 to file reply papers and a further hearing was scheduled for August 16, 1976.
On July 6, 1976, the Court entered an order granting 50% of the interim allowances sought by the Trustee; Weil, Gotshal & Manges; Anderson Russell Kill & Olick; and Coopers & Lybrand, without prejudice to the award of further interim and/or final allowances, on the grounds that "[these] applicants are presently devoting very substantial amounts of time in rendering services to the Estate" and "[the] Trustee has filed an affidavit stating that such payments may be made at this time without undue financial burden on the Estate."
At the hearing on August 16, 1976, the SEC presented its position on the applications for interim allowances and comments were solicited from the individual investors who were in attendance. A third hearing was held on August 30, 1976 for the purpose of concluding the oral argument in favor of and in opposition to the several applications for allowances.
Applicable Legal Principles
While allowance awards in a Chapter X proceeding generally await the consummation of the proceedings so that the results of the rehabilitation can be evaluated and the contribution of each party measured with the appropriate distribution of funds available, see 6A Collier on Bankruptcy para. 13.16 at 1009 (14th ed. 1972); In re Keystone Realty Holding Co., 117 F.2d 1003 (3d Cir.1941), interim allowances, under proper circumstances, may be granted to officers of the debtor's estate, including the trustee and his counsel, so that ". . . the administration of the debtor's estate may be carried on." 6A Collier on Bankruptcy, supra; see also, In re Keystone Realty Holding Co., supra; Matter of Paramount Publix Corp., 12 F. Supp. 16 (S.D.N.Y.1934). Indeed, this Court has noted on several occasions that these interim allowances are necessary to sustain those who have been working on this matter for the past sixteen months and who have been advancing their services to the estate without compensation. However, the interim allowances are designed only "to keep body and soul together", to provide necessary payments so that the services needed by the debtor estate can be continued.
In reviewing the various applications for allowances, the Court recognizes that the SEC's recommendations are entitled to great weight since it is a disinterested government agency skilled and experienced in reorganization affairs. Surface Transit, Inc. v. Saxe, Bacon & O'Shea, 266 F.2d 862 (2d Cir.1959); Finn v. Childs, 181 F.2d 431 (2d Cir.1950); see also, Securities Investor Protection Corp. v. Charisma Securities Corporation, 506 F.2d 1191 (2d Cir. 1974). The Court has proceeded on the basis that any awards granted be reasonable in the context of the value of the debtor's estate, the amount available for allowances, and the ability of the debtor to pay. 6A Collier on Bankruptcy para. 13.02 at 910 (14th ed.1972). In connection therewith, the Court has considered the papers filed in support of the application as well as the papers and letters filed in opposition, and has relied on the Trustee's affidavit dated July 5, 1976 in which he states that allowances sought at this time may be granted without undue burden to the financial condition of the Estate.
Application by the Reorganization Trustee
James Bloor, the Reorganization Trustee, was appointed to his position by the Court on November 1, 1974 and has performed his duties as Trustee on a full-time basis since on or about November 15, 1974. The Trustee, in his application, submits that his duties have required him to put in a full nine-hour day, five days a week and that on many occasions he has been required to spend additional hours in the evening and on Saturdays and Sundays. According to his records, the Trustee submits that he has devoted in excess of 2700 hours to his duties since his appointment on November 1, 1974 through February 29, 1976. For the services rendered during this period, the Trustee seeks an interim allowance in the amount of $133,333.00.
The SEC, in its recommendations, contends that the Trustee's request in equivalent to the rate of $100,000 per year but that his allowances in the future, under the simplified fee request procedure, will be limited to $75,000 per year. The SEC contends that in interim allowance at the rate of $75,000 per year is sufficient to alleviate any economic hardships incurred by the Trustee and, accordingly, recommends that the Trustee's request be reduced to $100,000 for the sixteen-month period in question. The SEC also contends that any amount in excess of $100,000 would be inconsistent with the principle of economy of administration in a Chapter X proceeding, particularly since it appears that reorganization in this case will be frustrated and it is impossible, at this time, to assess the impact of these proceedings on the public and private interests.
The Court is aware that the Trustee has devoted his full attention to the daily operations of Investors Funding Corporation and that he has performed his duties as Trustee over the first sixteen months of these proceedings without compensation. There is no dispute that the Trustee's services are essential to the Estate and that he has ably performed his duties as Trustee. While the Trustee's request for $133,333.00 may well be merited for the time and effort expended, interim allowances in a Chapter X proceeding are designed solely for the purpose of sustaining essential services to the Estate without profit to the recipient. Consequently, the Court will allow an interim allowance of $100,000.00, inclusive of the $66,666.50 previously awarded on July 6, 1976, on account of the services rendered by the Trustee from the time of his appointment on November 1, 1974 through February 29, 1976, without prejudice to the Trustee's right to assert his claim for additional compensation for this period in his final application for allowances.
Application of Weil, Gotshal & Manges, General Counsel for the Trustee
Weil, Gotshal & Manges and its counsel, the late Professor Charles Seligson,
were employed by James Bloor, as Reorganization Trustee, as his attorneys pursuant to an order of this Court dated November 20, 1974. An application for interim allowances in the amount of $503,800.00 is made for services rendered by the members and associates of Weil, Gotshal & Manges and Professor Seligson during the period from November 14, 1974, the actual date of retention by the Trustee, through and including February 29, 1976. In addition, applicant seeks reimbursement of actual and necessary costs and expenses in the amount of $32,105.16.
Objections to this application have been filed by the Chase Manhattan Bank, N.A. and the other banks parties to the 1973 Credit Agreement on the grounds that no compensation should be awarded until the Section 167 Report and the plan for reorganization are filed.
The Court has also received numerous letters from individual investors in IFC securities opposing the application.
Applicant has described in detail the services rendered for the Trustee and Debtor Estate, and states that an aggregate of 9,646 hours was expended for these services over a 15 1/2 month period. Approximately 2,510 hours or 27% of that time was expended by partners of the firm; 6,878 hours or 71% of the time was expended by associates; and 258 hours or 2% of the time was expended by paraprofessionals or summer students. The aggregate number of hours was then multiplied by a mixed hourly rate of $52.23 to arrive at the requested amount of $503,800.00.
Applicant contends, through the affidavit of Jesse D. Wolff dated August 6, 1976, that the cost of the services provided to the Trustee, at the firm's normal hourly rates, would approximate $671,745.00 and that the actual cost of doing business, or overhead, amounts to 62.9% of each dollar of income realized. Applying this overhead figure to the aggregate amount of time charges accrued in the representation of the Trustee, applicant contends that the actual cost to the firm (exclusive of any compensation to the partners and out-of-pocket disbursements of the firm) would equal $422,527.00. This figure, according to the affidavit of Jesse D. Wolff, covers the salaries for associates, stenographic and ...