The opinion of the court was delivered by: STEWART
The First National Bank of Boston and the John Hancock Mutual Life Insurance Company (the "Lenders") have applied to this Court for an order directing the Trustee of the estates of Wm. Gluckin Co. Ltd., Wm. Gluckin & Co., Inc. and Pittston Apparel Co. (the "Debtors") to pay over to the Lenders in the form of an interim distribution at least 90% Of the total sum available for distribution. The Lenders assert that such distribution is warranted (1) because other competing claims, specifically the so-called intercompany claims, should be barred as untimely; or (2) because they have priority arising from certain Factor's Liens, Security Agreements or other guaranties.
Briefly, the facts are as follows. Wm. Gluckin Co. Ltd., the parent company, Wm. Gluckin & Co., Inc. and Pittston Apparel Co., affiliated companies, filed petitions in late February, 1973, instituting proceedings pursuant to Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 Et seq. Until that time, and for some time thereafter, Debtors were involved in the manufacture of women's undergarments along with various other affiliated corporations located in the Commonwealth of Puerto Rico., namely: Wm. Gluckin & Co., Inc. of Puerto Rico, Bra-Glo Mfg. Co., Inc., Harjon, Inc., Harjon, Inc. # 2, Tedros Corporation, Lyntris Corporation, Debmar Corporation and Chico Realty Corporation (collectively referred to as the "Puerto Rican Affiliates"). No petitions in bankruptcy have been filed by or on behalf of the Puerto Rican Affiliates even though they have been for all practical purposes dormant for several years. Some sixteen months after the three Debtors filed their petitions, they ceased operations and were liquidated. Since that time, approximately four years ago, the Trustee has held the proceeds of that liquidation in cash or cash equivalents, except for a sum of $ 1,800,000 released by the Trustee to the Lenders pursuant to an Order of this Court dated October 25, 1977, representing the proceeds of the "Domestic Security" (an issue unrelated to the Lenders' present application for an interim distribution).
As all parties seem to agree, the major stumbling block in the present context is the "intercompany claims"; claims asserted by the various Puerto Rican Affiliates against the Debtors totalling some $ 15,442,378. These claims were the result of a complex series of transactions among the various corporate entities, the substance of which appears to be that Wm. Gluckin Co., Inc. ("Gluckin", a New York corporation) financed the purchase and manufacture of materials and eventually took responsibility for selling the finished products while the various Puerto Rican Affiliates were used essentially as "contracting" services (and, at least in the case of Bra-Glo, for purchasing materials with funds advanced by Gluckin) (Trustee's Exhibit A).
The claim of the Lenders against the Debtors is currently about $ 4,700,000 (reduced from the initial $ 6,500,000 by the $ 1,800,000 distribution referred to above) and arises from various loans made to Gluckin to finance operations. The Lenders also assert a claim of $ 6,500,000 against each of the Puerto Rican Affiliates pursuant to Factor's Liens, Security Agreements and/or other guaranties (See : Lenders' Exhibit B for copies of the various agreements). It is the Lenders' contention that (1) the intercompany claim is time barred; and (2) even if it is not so barred, the Lenders have priority because of their various liens or other forms of security against each of the Puerto Rican Affiliates
and therefore an interim distribution is warranted. It is the Trustee's contention that (1) the intercompany claims are timely and valid; (2) this Court lacks jurisdiction to determine the validity of the Lenders' claims or liens against the Puerto Rican Affiliates since they are not the debtors in these cases; and (3) even if this Court does have sufficient jurisdiction, at the present time there is enough uncertainty as to the validity of Lenders' claims and liens against the Puerto Rican Affiliates to justify delaying any distribution until bankruptcy proceedings can be instituted on behalf of those Affiliates.
As might be expected, the amount to which the Lenders would be entitled varies widely depending on the status of the intercompany claims. If the claims were valid, the Lenders would receive only about 20% Of the $ 715,000 available for distribution; otherwise, they would be entitled to 90% Or more.
Pursuant to an Order dated July 24, 1973, as amended (the "Bar Order"), this Court called for all claims to be filed by August 27, 1973, a date which has long since expired. No claims were filed by or on behalf of the Puerto Rican Affiliates relating to the $ 15,442,378 intercompany claim. These claims, however, were noted in timely fashion by the Trustee in his "List of Shareholders and Creditors" filed with this Court March 21, 1973, well before the bar date.
Section 224(4) of the Bankruptcy Act, Chapter X, 11 U.S.C. § 624(4) provides:
distribution shall be made, in accordance with the provisions of the plan, to creditors and stockholders (a) proofs of whose claims or stock have been filed prior to the date fixed by the judge and are allowed, or (b) if not so filed, whose claims or stock have been listed by the trustee or scheduled by the debtor in possession and are not contingent, unliquidated or disputed.
It has been held that by amending § 224(4) to its present form, "Congress intended to permit a creditor . . . to share in the distribution, despite its failure to file its claim, if its claim has been listed by the trustee and is, In fact, not contingent, unliquidated or disputed." In re La Crosse Trailer Corp., 279 F. Supp. 735, 737 (W.D.Wis.1968) (emphasis added). Thus under § 224(4), the intercompany claims will be entitled to distribution, even though never filed, if they are In fact not disputed. In their Reply Memorandum (p. 16), Lenders assert that the claims have been disputed "since the commencement of these proceedings." As pointed out in oral argument, however, the Trustee has never disputed the intercompany claims. Transcript at 35. Since the Trustee, who is closest to the information and who has the duty of examining claims and allowing or disallowing them, has not disputed the intercompany claims thus far, we cannot say on the present record that the claims are so disputed In fact as to bar them from distribution pursuant to § 224(4). Mindful of both the Trustee's fiduciary office and Congressional policy that Chapter X seeks the preservation rather than the forfeiture of claims, this Court, in the presence of a close question, is inclined to give the benefit of the doubt to the Trustee's position which will preserve the intercompany claim, at least for the present time.
The main thrust of the Lenders' argument, however, is directed, not at invalidation under § 224(4), but pursuant to Rule 10-401, Rules of Bankr.Proc.Rule 10-401, 11 U.S.C.A.
It is their contention that (1) Rule 10-401 should be applied retroactively
to the present case; and, (2) if so applied, that Rule will invalidate the intercompany claim as untimely. The Order of the Supreme Court of the United States dated April 28, 1975 provided that the Chapter X Rules "shall be applicable to proceedings then pending except to the extent that in the opinion of the court their application in a particular proceeding then pending would not be feasible or would work injustice, in which event the former procedure applies." 421 U.S. 1021 (1975).
It is difficult to see how, if Rule 10-401 would indeed bar the claims of the Puerto Rican Affiliates, that anything but injustice would be worked. Claims that were timely listed by the Trustee and as such under prior practice would be entitled to distribution, suddenly by retroactive application are invalidated. The Lenders argue that this result could have been prevented by the Trustee petitioning the Court for an extension of time pursuant to Rules 906(b) and 10-901, and then if such petition were granted,
proceed to file the claims on behalf of the Puerto Rican Affiliates. Reply Memorandum at 15. While such a series of events might have been feasible, it certainly would not have been sensible. The Lenders offer no persuasive reasons why the Trustee should take both his and this Court's time by petitioning for the right and filing against himself claims that all parties already have sufficient notice of and are already duly listed in accordance with the procedure applicable at the time. The Lenders show no benefit that would have been achieved from this empty, formalistic ceremony and yet still contend that failure to follow such procedure warrants invalidation of the intercompany claim. It is the opinion of this Court that where no benefit can be achieved and only forfeiture of previously valid claims can result, an injustice within the meaning of the Supreme Court's Order of April 28, 1975 has been worked and Rule 10-401 cannot be applied to this particular proceeding.
Finally, it should be noted that even if Rule 10-401 were to apply, the claims of the Puerto Rican Affiliates would still be valid. The Lenders rely on Rule 10-401(b)(3)(B) as support for their position that Rule 10-401 bars the intercompany claim.
Such reliance, however, is misplaced. Subdivision (b)(3)(B) provides for the case where after the claim has been listed as not disputed, a question as ...