Arthur Goldberg

“ Indeed, the facts of this case aptly demonstrate the need for Chapter X protection as a general rule on the above-stated principles. There is clearly a need for a study by a disinterested trustee to make a thorough examination of respondent's financial problems and management and submit a full report to the public-investor creditors. Respondent has never operated profitably, has always been in precarious financial condition, and apparently was hopelessly insolvent, in both the bankruptcy and equity sense, when the arrangement was proposed. ”

“ Chapter X explicitly requires that a petition brought under it must be dismissed if it has not been brought in 'good faith.' § 141. 'Good faith' is defined so as to exclude from Chapter X those cases, inter alia, where 'it is unreasonable to expect that a plan of reorganization can be effected.' § 146 (3) . Such a situation would exist where the debtor is so hopelessly insolvent that straight bankruptcy liquidation is the only available expedient. ”

“ In General Stores Corp. v. Shlensky, supra, a corporation with over 2,000,000 shares of common stock, held by over 7,000 shareholders, but with no publicly held debt of any kind, petitioned under Chapter XI for an arrangement of its unsecured debt, consisting of obligations to trade creditors and one private investor. The District Court had held, with the Court of Appeals affirming that Chapter XI was unavailable as the debtor needed more extensive reorganization than merely a simple arrangement with unsecured creditors. ”

“ No authority has been found which would indicate that recipients of stock issued in connection with an arrangement are not entitled to as much information as are those persons acquiring stock under ordinary conditions.' We agree. ”

“ A trustee is only provided in the very limited situation where a trustee in bankruptcy has previously been appointed, [9] § 332. There is no requirement for a receiver, but the Court 'may' appoint one if it finds it to be 'necessary,' § 332. The plan of arrangement is proposed by, and only by, the debtor, §§ 306 (1) , 323, 357, and creditors have only the choice of accepting or rejecting it. Acceptances may be solicited by the debtor even before filing of the Chapter XI petition and, in fact, must be solicited before court review of the plan, § 336 (4) . ”

“ Applying the above principles, it is obvious that Chapter X is the appropriate proceeding for the attempted rehabilitation of respondent in this case. Here public debts are being adjusted. The investors are many and widespread, not few in number intimately connected with the debtor, and the adjustment is quite major and certainly not minor. These facts alone would require Chapter X proceedings under the above-stated principles. ”

“ If this plan were approved and all of the investor-trailer owners participated, a total of approximately 866,000 shares of Capitol's stock would be issued to them, but approximately 81,500 shares would be issued directly to the officers and directors of respondent, 22,400 to trade and other general creditors, and 107,000 to respondent itself to be distributed to its stockholders. More than 60% of respondent's stock was held by eight men, seven of whom are officers and directors and the eighth one of the original promoters of the venture. ”

“ It cannot seriously be contended that this right to find a trailer that was not intended to be purchased makes the plan a completely voluntary one.↑ In so holding, we indicate no opinion as to whether or not a Chapter X reorganization would be appropriate in this case. See note 17, supra. We merely hold that all issues relevant to the possible financial rehabilitation of respondent must here be determined within the confines of a Chapter X, rather than a Chapter XI, proceeding. See United States Realty, supra, at 310 U.S. 453, 60 S.Ct. ”

“ It should be noted that, prior to United States Realty, a bill had been introduced in Congress to draw a numerical line that would close Chapter XI to any corporation which had any class of its securities owned by 100 or more creditors or stockholders. See Hearing before Special Subcommittee on Bankruptcy and Reorganization of the House Committee on the Judiciary on H.R. 9864, 76th Cong., 3d Sess. ”