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IN RE RITZ-CARLTON RESTAURANT & HOTEL CO.

July 14, 1938

In re RITZ-CARLTON RESTAURANT & HOTEL CO. OF ATLANTIC CITY


The opinion of the court was delivered by: AVIS

On June 23, 1938, the debtor filed its petition for reorganization. On the same date an order to show cause was issued with relation to the approval of the petition. At the time of hearing on said order, objection to the approval of the petition was made by Bankers Securities Corporation and certain interested individuals. The objections were based upon two propositions: (1) That the costs on appeal in a prior proceeding of a similar character had not been paid; (2) that a complete financial statement and schedules had not been filed. Incidentally, the question was raised as to whether the proceedings should be conducted and continued under 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, or whether they were controlled by the terms and conditions prescribed in the new amendment approved June 22, 1938.

As to the first objection, it is true that ordinarily the costs assessed against a party in a previous proceeding of the same character must be paid before a new action may be prosecuted. This rule is established to prevent unnecessary and vexatious litigation. The instant case is not an ordinary action at law or in equity, but involves the reorganization of a corporation for the benefit of all of its creditors. If the corporation had ample funds, it could well be said that the payment should be made at once and prior to consideration of the new petition. The question is one of fairness, and is undoubtedly within the discretion of the Court. I am convinced that the Court should not require the payment of these costs in advance of the consideration of the petition last filed. The payment may be taken care of in the reorganization proceedings.

 The second objection has merit, but I am inclined to hold that it is not a matter which precludes the approval of the petition. The petition attempts to incorporate the schedules which were filed with the earlier petition, in the new proceedings. This is not sufficient in view of the objection made, and the debtor should file complete new schedules and statement as required by the statute within ten days of the approval of the petition.

 The third objection has raised a very intricate and interesting question. The objectors claim that in all matters of this character, where the petition is approved subsequent to the approval of the new act, the said act applies to all proceedings incident to the reorganization.

 Section 7 of Chapter 14, which applies to all terms of the new act, 52 Stat. 940, reads as follows: "This amendatory Act shall take effect and be in force on and after three months from the date of its approval."

 It takes effect under this provision on September 22d or 23rd, 1938. On which of these dates is immaterial to the present controversy.

 The objectors claim that under Article 16, Section 276 of chapter 10, subsection "c", it is clear that the statute is retroactive in its effect, and applies to all proceedings immediately after approval where the petition is approved within three months prior to the effective date of the act.

 Reliance is placed upon the language of the above subsection which reads as follows:

 "the provisions of sections 77A and 77B of chapter VIII, as amended, of the Act entitled 'An Act to establish a uniform system of bankruptcy throughout the United States,' approved July 1, 1898, shall continue in full force and effect with respect to proceedings pending under those sections upon the effective date of this amendatory Act, except that --

 "(1) if the petition in such proceedings was approved within three months prior to the effective date of this amendatory Act, the provisions of this chapter shall apply in their entirety to such proceedings; and

 "(2) if the petition in such proceedings was approved more than three months before the effective date of this amendatory Act, the provisions of this chapter shall apply to such proceedings to the extent that the judge shall deem their application practicable; * * *." 11 U.S.C.A. § 676.

 It will be noted that the effective date of the act is fixed as three months after its approval. It also appears that Congress was not satisfied with this statement alone as it applied to cases wherein the petitions had been filed and approved prior to the effective date of the act, but affirmatively declared that the provisions of 77A and 77B (11 U.S.C.A. §§ 206, 207) should "continue in full force and effect with respect to proceedings pending under those sections upon the effective date of this amendatory Act." If no exception to the above provision had been incorporated in the act, there would be no question as to the meaning. The act would not affect any proceedings, unless instituted after its effective date.


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