In Re Delaware Hosiery Mills, Inc. Appeal of Northwestern Nat. Bank in Philadelphia, 202 F.2d 951, 3rd Cir. (1953)
In Re Delaware Hosiery Mills, Inc. Appeal of Northwestern Nat. Bank in Philadelphia, 202 F.2d 951, 3rd Cir. (1953)
In Re Delaware Hosiery Mills, Inc. Appeal of Northwestern Nat. Bank in Philadelphia, 202 F.2d 951, 3rd Cir. (1953)
2d 951
The cause was referred to a bankruptcy referee. Receivers were appointed and
leave given to them to continue operation of the business. Upon petition the
receivers obtained leave by Order of the District Court to borrow $10,000.2
Prior to the entry of the Order and on the basis of the fact that it was then being
applied for, Joseph B. Fitzpatrick, one of the receivers, had loaned the latter
$5,000.
The funds realized from the liquidation were insufficient to repay the receivers'
loans, their debts for merchandise supplied them and costs of administration.
The Referee in the Order of Final Distribution placed the $4,500 indebtedness
to the Bank, the balance of the indebtedness to Fitzpatrick (reduced to $2,500)
and an overdraft of $66.57 in the receivers' checking account with the Bank in
the same class with receivers' debts for merchandise and services rendered to
them and the allowances for compensation and court costs, and directed pro
rata distribution.3
The District Court dismissed the Bank's Application for Review and affirmed
the Order of the Referee.
In its appeal from the District Court's action, the Bank urges that it is entitled to
priority over all other costs of administration. It premises its claim to priority on
the fact that it made the loan to the receivers in reliance on the District Court's
Order granting leave to the receivers to borrow, and that as a consequence it
enjoys priority under the provisions of Section 344 of the Bankruptcy Act,4 and
that Section 64(a) of the Bankruptcy Act5 relied on by the Referee is
inapplicable.
There was no express provision in the authorization given by the District Court
in the instant case as to the order of priority of the borrowed money with
respect to the other costs of administration and we will not construe the
language of the decree as giving the creditor any such priority. The tendency
has always been in equity to protect the compensation of receivers and their
counsel even to the extent of giving them priority over receivers' certificates, In
re Columbia Ribbon Co., 3 Cir., 1941, 117 F.2d 999, 1002, and Ball v.
Improved Property Holding Co., 2 Cir., 1917, 147 F. 645, 651.
10
Paragraph 378 of the Bankruptcy Act 7 provides that upon the entry of an order
directing bankruptcy following a petition for an arrangement, the proceedings
shall be conducted as far as possible and in the same manner and with like
effect as if a voluntary petition for adjudication had been filed and adjudication
had thereunder. It therefore follows that the general provisions of the
Bankruptcy Act would be applicable and in particular Section 64, sub. a, would
govern the distribution.
11
It is well settled that there can be no priorities within the priority classes
enumerated by Section 64, sub. a, of the Bankruptcy Act. (See the
comprehensive opinion of Judge Maris In re Columbia Ribbon Co., supra.)
12
For the reasons stated the Order of the District Court will be affirmed.
confirmation of the arrangement where the court has retained jurisdiction, the
court may upon cause shown authorize the receiver or trustee, or the debtor in
possession, to issue certificates of indebtedness for cash, property, or other
consideration approved by the court, upon such terms and conditions and with
such security and priority in payment over existing obligations as in the
particular case may be equitable.'
5
Research has not disclosed any case where there was a provision that the
certificate or loan had priority over expenses of administration