The opinion of the court was delivered by: MADDEN
Before the Court at this time is a petition for review of an order of the Referee in Bankruptcy. The petitioners are the Woodbury Trust Company and the First National Bank of Woodbury (hereinafter referred to as 'the Banks'), principal creditors of the bankrupt corporation. The Referee's order, along with the salient facts leading up to the same, are set out below.
On July 7, 1959, an involuntary petition in bankruptcy was filed against Tailortowne, Inc. (hereinafter referred to as 'the bankrupt') by certain of its employees. Two days later the Referee held a hearing, at which attorneys for both the Banks and the petitioning employees were present.
During the hearing it was brought out that the bankrupt was deeply indebted to the Banks (which had been financing the bankrupt for some time); that its only remaining asset of any value was a contract with the United States Government for the manufacture of certain Air Force uniform jackets; that at the time the bankruptcy petition was filed the bankrupt had delivered slightly less than one-fourth of these jackets and had due and owing from the Government thereon a balance of approximately $ 16,000; and that under an assignment from the bankrupt, the Banks were to receive this money from the United States for advances made by them to the bankrupt.
During the course of the hearing it was suggested that a Receiver be appointed to continue performance under the Government contract in order to realize some further assets for the Banks and at the same time provide employment for the seventy or more employees of the bankrupt. The chief obstacle to this plan was the lack of adequate capital to meet current expenses necessary to complete work under the contract.
Four days later the Referee issued an order appointing a Receiver. The order also provided:
'* * * The Receiver is hereby authorized and directed to resume operations in the performance of debtor's Government contract subject to the control and direction of the Court.
'The Receiver is authorized to present to this Court, for approval by this Court, an agreement with (the Banks), by which sufficient funds to operate said debtor's business may be obtained.'
Such an agreement between the Banks and the Receiver was in fact reached, and on July 15 it was confirmed by the Referee in an order which reads as follows:
'And Now To Wit, this 15th day of July, 1959, on motion of Joseph H. Enos, Receiver in the above-captioned matter, it is hereby ordered and decreed as follows:
'1. The Agreement between the Receiver and the First National Bank and Trust Company of Woodbury, New Jersey, and the Woodbury Trust Company of Woodbury, New Jersey, dated July 14, 1959, by which the Receiver is to receive from the said Bank and Trust Company certain sums for unpaid wage claims against the debtor and for certain sums to operate the business of said debtor to complete debtor's government contract, is hereby approved.
'2. In the event that, in the Receiver's opinion, he does not receive sufficient funds to operate the said business or if, in the Receiver's opinion, he does not receive sufficient funds to pay all tax liabilities including unemployment compensation, social security and withholding taxes, or if, in the Receiver's opinion, the operation of said business will result in a loss, then at the Receiver's opinion he may make immediate application to the court, for leave to cease operations, on notice to the said Bank and Trust Company, to the attorney for the bankrupt and to the attorney for the Philadelphia Joint Board Amalgamated Clothing Workers of America.'
The agreement itself provided that the Banks would lend to the Receiver, upon Receiver's certificate, 75% Of the net value of all goods shipped to the Government by the Receiver. In turn the Receiver was to use this money to pay current expenses, particularly wage claims against the bankrupt. The Banks had the discretion to withdraw their commitments upon written notice to the Receiver.
On July 17, the Receiver confirmed this agreement with the Contracting Officer and the Disbursing Officer of the United States Government. On July 20, three days after the Receiver confirmed the Referee's order with the Government officers, the Banks received the sum of $ 15,879.38 from the Government. This sum represented payment for jackets received by the Government prior to the filing of the petition in bankruptcy.
After completing his examination of the business the Receiver concluded that the business could not be operated successfully. On August 10, he accordingly made application for leave to cease operation of the business and to be released as Receiver. The Receiver never in fact operated the business of the ...