Where the answer of an insolvent corporation, in a suit brought
by a simple contract creditor for the conservation and disposition
of its property for the benefit of it creditors, admitted the
allegations of the bill and consented to a decree appointing
receiver,
held that this amounted to the handing over of
all the property and business to be administered a a trust fund to
pay debts, and was in substance a voluntary assignment within the
meaning of Rev.Stats. § 3466, entitling the United States to
priority in payment of it claim. P.
269 U. S.
513.
9 F.2d 1018 reversed.
Certiorari to a judgment of the circuit court of appeals
affirming an order of the district court which dismissed a petition
in intervention filed by the United States, seeking preferred
payment of its claim in a suit to administer and dispose of the
assets of a corporation, through receivers, for the settlement of
its debts.
See also Price v. United States, ante, p.
269 U. S. 492.
Page 269 U. S. 511
MR. JUSTICE BUTLER delivered the opinion of the Court.
April 22, 1922, respondent, a New York corporation, was
insolvent within the meaning of R.S. § 3466 and as defined by the
Bankruptcy Act. Its debts amounted to approximately $3,000,000, and
included $1,154,450 due to the United States. The value of its
assets was not in excess of $1,500,000. On that day, the Hay
Foundry & Iron Works, a simple contract creditor, on behalf of
itself and other creditors, brought suit against the respondent in
the District Court for the Southern District of New York. Among the
facts alleged are these: respondent
Page 269 U. S. 512
owed plaintiff $7,988.43 for labor and materials furnished, and
was without money to pay its debts then due. The value of its
property, if properly and prudently realized on, would be more than
enough to pay its obligations. Some of its creditors were
threatening to bring suits on their claims, and resulting forced
sales of the property would cause great loss to the creditors.
Plaintiff believed that the property could be preserved for
equitable distribution among those entitled thereto only upon the
granting of equitable relief, including the appointment of
receivers, and that, unless the court would deal with the property
as a trust fund for the payment of creditors, it would be
sacrificed to the great loss of creditors. More would be realized
from a sale if the business was being carried on. The prayer was
for the appointment of receivers, and that, when found to be just
and proper, the properties be sold, and the proceeds distributed
among those entitled thereto. By its answer filed on the same day,
respondent admitted all the allegations of the complaint, and, with
its consent, the court thereupon made an order appointing
receivers. The order recited that it was necessary for the
protection of the respective rights and equities of creditors that
the property and business be administered through receivers, and
gave to them the exclusive possession, custody, and control; they
were authorized to continue the business until the further order of
the court, to make disbursements necessary to preserve the
property, and to pay debts entitled to priority.
September 1, 1922, the United States filed proof of the debt due
from respondent and claimed priority under § 3466, and later filed
its intervening petition, setting forth the facts above stated, and
prayed to be adjudged entitled to priority. Respondent moved to
dismiss. The district court granted the motion. Its decree was
affirmed by the circuit court of appeals. 9 F.2d 1018. The case is
here on certiorari under § 240. Judicial Code.
Page 269 U. S. 513
The question is whether § 3466 applies. That section and § 3467,
in pari materia, are quoted in
Bramwell v. United
States Fidelity & Guaranty Co., ante, p.
269 U. S. 483. The
intervening petition shows that respondent was insolvent when the
creditor's suit was begun, and the question of priority is to be
determined on that basis, notwithstanding the complaint alleged and
the answer admitted that respondent was solvent. Respondent's
answer admitting the allegations of the complaint and its consent
to the court's order constituted a necessary step in the
proceedings for the appointment of receivers.
Re Metropolitan
Railway Receivership, 208 U. S. 90,
208 U. S.
109-110;
Pusey & Jones Co. v. Hanessen,
261 U. S. 491,
261 U. S. 500.
So, with the consent and cooperation of the insolvent debtor, the
possession and control of all its property were handed over to be
administered by the court, through the receivers, for the benefit
of those whom the court found entitled to it.
Porter v.
Sabin, 149 U. S. 473,
149 U. S. 479.
To induce the action taken by the court, the complaint represented
that, if respondent's property was not dealt with as a trust fund
for the payment of creditors, they would suffer great loss. It is
established that, when a court of equity takes into its possession
the assets of an insolvent corporation, it will administer them on
the theory that, in equity, they belong to the creditors and
shareholders, rather than to the corporation itself.
See
Hollins v. Brierfield Coal & Iron Co., 150 U.
S. 371,
150 U. S. 383;
Graham v. Railroad Co., 102 U. S. 148,
102 U. S. 161.
Here, the fund being less than the debts, the creditors are
entitled to have all of it distributed among them according to
their rights and priorities.
Taken in connection with its insolvency, now conceded,
respondent's answer admitting the allegations of the complaint and
its consent to the decree appointing receivers amounted to the
handing over of all its property and business
Page 269 U. S. 514
to the receivers to be administered, under the direction of the
court, as a trust fund to pay respondent's debts. In substance, the
things done by respondent amounted to a voluntary assignment of all
its property within the meaning of § 3466. The United States is
entitled to priority.
Bramwell v. United States Fidelity &
Guaranty Co., supra, aff'g 299 F. 705;
Davis v.
Pullen, 277 F. 650;
Davis v. Miller-Link Lumber Co.,
296 F. 649.
Cf. Equitable Trust Co. v. Connecticut Brass &
Mfg. Corp., 290 F. 712;
Davis v. Michigan Trust Co.,
2 F.2d 194.
Decree reversed.