pray that any Chapter X petition which may be ordered filed be separate from and limited to the affairs and property of each of said alleged debtors.
The affidavit of Sidney Engelhardt discloses as follows: On September 30, 1964 Engelhardt sold to Orblack, the issued and outstanding capital stock of Orange & Black and Fairview for the respective sums of $860,000 and $120,000. As of October 11, 1967 Orblack was indebted to Engelhardt on account of the price of the Orange & Black stock in the amount of $700,439.12, and on account of the price of the Fairview stock in the amount of $95,121.11. These outstanding balances are payable over a 12-year period and are secured by purchase money pledges and liens in favor of the Engelhardts on the capital stock of Orange & Black and Fairview. Also on September 30, 1964, Kenron sold to Fairtrans real estate located at 419 Anderson Avenue, Fairview, New Jersey. As of October 11, 1967 Fairtrans owed Kenron a balance of $345,895.93 on account of the purchase price of the real estate which also is payable over a period of 12 years and is secured by a purchase money mortgage held by Kenron. Orblack is a holding company and has no creditors other than Engelhardt. Orange & Black owns buses and operates bus lines under interstate and intrastate franchises. Fairview leases bus equipment to Orange & Black. Fairtrans owns the premises upon which are constructed the garage and other facilities used by Orange & Black and Fairview. Prior to August 1, 1967, all of these corporations (Orblack, Orange & Black, Fairview and Fairtrans) paid their debts as they matured. None of these four corporations sold unsecured notes to the public or borrowed from the public at large. They have no public debt nor are their securities publicly held. They are not charged with issuing false financial statements and such capital structures as each of these corporations has is not complex. The businesses of Orblack, Orange & Black, Fairview and Fairtrans are separate and distinct from the businesses operated by M.C.C. and the other 21 debtor corporations. Orange & Black operates a separate and distinct bus line, unrelated to Inter-City, which is the primary operating unit of the other 22 debtor corporations. In their dealings with Orblack, Orange & Black, Fairview and Fairtrans, Engelhardt and Kenron bargained for and relied upon the separate and distinct corporate entities represented by those corporations and upon their property and assets.
Where, as here, several debtor corporations are all owned or controlled by one person, and operated as a single unit, with little or no attention paid to the formalities usually observed in independent corporations, and the officers and directors of all of the corporations are substantially the same, and funds were shifted back and forth between the corporations in an extremely complex pattern and, in effect, pooled together with loans being made back and forth, borrowings made by some to pay obligations of others, and withdrawals made from and to corporate accounts by the individual in control of all were not sufficiently recorded on the books of the respective corporate entities, auditing of the financial condition of the corporations and investigation of the intercompany relationships would entail great expenditure of time and expense without assurance that a fair reflection of the conditions of the debtor corporations would in the end be possible. Accordingly a Chapter X reorganization court may consolidate the administration and the assets and liabilities of the separate corporations. Chemical Bank New York Trust Company, Trustee v. Kheel, 369 F.2d 845 (2 Cir. 1966). If Orblack, Orange & Black, Fairview and Fairtrans are not insolvent they may plead by answer under § 137 of the Act (11 U.S.C. § 537) seeking a dismissal under 144 of the Act (11 U.S.C. § 544).
As indicated by the facts outlined above, in the present case, as in American Trailer, supra, we are dealing with investor-creditors and a large public debt. The general rule set out in United States Realty, supra, and specifically reaffirmed by American Trailer, supra, that Chapter X is the appropriate proceeding for adjustment of publicly held debt is definitely applicable to the case at bar. Likewise the factual picture here disclosed does not fall within the narrow exceptions to this general rule announced in General Stores Corp. v. Shlensky, 350 U.S. 462, 76 S. Ct. 516, 100 L. Ed. 550 (1955) and also reaffirmed in American Trailer, supra.
In this case, all the debtors require rehabilitation. This will involve the adjustment of their public and their intercorporate debts. The investors in the debtors are numerous and widely scattered and the required adjustments will be major in character. It is obvious to the Court that the unsecured creditors at the time they made their loans were not informed how, nor were they aware of the purposes for which their monies were intended to be used, or to whom they would be required to look for payment beyond the respective makers of the notes which they received. The proposed plan of arrangement still leaves these creditors in the dark respecting the time when, and source from which they may ultimately expect to receive payment in full of their claims. It is therefore essential that a complete investigation be made of the affairs and interrelationships of the debtors by a completely independent trustee upon whose report the court may find a basis for determining whether the adjustment of all interests among the debtors, secured creditors, unsecured creditors and stockholders may be effectuated through a reorganization of the corporate debtors and upon what terms.
In this case, as in General Stores, supra, at 465, 76 S. Ct. at 519, it is necessary to determine on the facts of the case whether the formulation of a plan under the control of Richmond, or the formulation of a plan under the direction of a disinterested trustee, as assured by the protective provisions of Chapter X "would better serve 'the public and private interests concerned including those of the debtor.'"
"The appointment of a disinterested trustee * * *, his broad powers of investigation * * *, the role of the trustee in preparing a plan, * * * the duty of the Securities and Exchange Commission to render an advisory report on the plan * * *, the requirement that the plan be 'fair and equitable, and feasible' * * *, the power to include the subsidiaries, * * * [and affiliates] in the reorganization * * * - these are controls which c. X gives to the entire community of interest in the [debtor] [companies] being reorganized and which are lacking under c. XI. These controls are essential both where a complicated debt structure must be readjusted and where a sound discretion indicates either that there must be an accounting from the management or that a new management is necessary. Those conditions only illustrate the need for c. X. There may be others equally compelling." General Stores, supra, at p. 467, 76 S. Ct. at p. 519.