The opinion of the court was delivered by: CARTER
The debtor filed a petition in the Bankruptcy Court seeking an arrangement under Chapter XII of the Bankruptcy Act. The debtor was permitted to retain possession of its sole asset, land and an apartment building erected thereon known as Schwab House located at 11 Riverside Drive, New York, New York.
Schwab House is encumbered by the following three mortgages: (1) a first mortgage held by Prudential Insurance Co. of America ("Prudential") in the aggregate unpaid principal amount of $ 4,771,998.13 plus accrued interest and expenses; (2) a second mortgage held by the trustees of C.I. Mortgage Group ("C.I."), in the unpaid principal amount of $ 4,800,000 plus accrued interest; and (3) a third mortgage originally held by IFC Collateral Corporation ("IFC"), and later assigned as security to Chase Manhattan Bank N.A. ("Chase"), in the unpaid principal amount of $ 3,363,001.87 plus accrued interest.
The first mortgage originally matured on October 1, 1974, but was subsequently modified and extended to October 1, 1976 with interest at 10% Per annum. On October 1, 1976, the debtor defaulted by failing to pay to Prudential the entire principal balance which was then due and owing. Since October 1, 1976, no part of said principal balance has been paid.
On January 31, 1977, Prudential commenced proceedings in the Supreme Court of the State of New York, County of New York to foreclose its first mortgage. The court appointed Charles Korn and Samuel M. Gold as receivers of all rents and profits then due and unpaid or to become due from Schwab House during the pendency of the foreclosure proceeding. That proceeding was automatically stayed by the petition in this case and by the specific order of the Bankruptcy Court dated February 2, 1977.
On June 15, 1977, the court below issued an order permitting Prudential to continue the foreclosure proceeding to the point of sale and ordered the debtor to transfer possession of Schwab House and related moneys to the receivers.
This court (Brieant, J.), by opinion dated June 29, 1977, and order dated July 6, 1977, vacated the part of the order relating to transfer of possession of Schwab House and related moneys to the receivers, indicating that dismissal of the case would be appropriate if reorganization of the debtor was impracticable.
In July, 1977, the debtor filed a plan for modification of its secured and unsecured debts, and filed amendments to this plan in August, 1977. The proposed plan divides the creditors of the debtor into five classes, putting the holders of the first mortgage, second mortgage and third mortgage in Classes 1, 2 and 3, respectively.
The proposed plan would extend the first mortgage for ten years to October 1, 1986, with payments to be made in equal monthly installments of $ 40,054.43 including a reduced interest rate of 9% Per annum. The remaining principal would become due and payable at the end of the ten year period.
The second mortgage would be extended for ten years to October 1, 1989; the principal would be reduced from $ 4,800,000.00 to $ 3,200,000.00, and be paid out of excess cash flow (as defined in the plan) in equal monthly installments of $ 26,855.00 including interest at a reduced rate of 9% Per annum. The remaining principal would become due and payable at the end of the ten year period.
The third mortgage is to be modified so that during its entire term interest shall be paid quarterly at 9% Per annum out of further cash flow (as defined in the plan) for a period of ten years at which time the remaining principal shall become due and payable.
Decision of the Bankruptcy Court
The holders of the first, second and third mortgages have all rejected the plan and moved for dismissal. On November 14, 1977, the Bankruptcy Court held that since each of the secured creditors had rejected the plan, it could not be confirmed. It was also held that the plan could not be confirmed under § 461(11) of the Bankruptcy Act (11 U.S.C. § 861(11)) since none of the methods set forth in that provision were utilized, and the plan did not afford ...