Appeals from the District Court of the United States for the Northern District of Illinois, Eastern Division; William H. Holly, Judge.
Before EVANS, MAJOR, and ALSCHULER, Circuit Judges.
The appellant, by its two appeals, one allowed by this court and one by the District Court, seeks to reverse an order of the District Court which denied an application to enjoin the trnstee named in two trust indentures from accelerating the maturity date of the debentures issued thereunder, because of non-payment of interest.
The facts.The debtor is a holding company whose petition, filed under section 77B of the Bankruptcy Act, as amended, 11 U.S.C.A. § 207, was decreed by the court to have been properly filed and in good faith compliance with said Bankruptcy Act and all creditors were enjoined from prosecuting suits in equity or actions at law against said debtor.
The debtor was continued in possession of its property.
Its balance sheet as of December 31, 1936, showed assets valued at $89,384,996.57 and liabilities of $54,000,000 including $36,000,000 in principal of its thirty-year 5 per cent. Gold Debentures, due February 1, 1959, and $14,000,000 twenty-year 5 1/2 per cent. Gold Debentures due June 1, 1947. The debtor sought instructions from the court in reference to the payment of the semi-annual interest instalment upon the aforementioned debenture issues. Certain minority creditors objected to the payment of interest. The court made findings and entered an order directing the debtor not to pay the interest due thereon February 1, 1937, and June 1, 1937. It appeared that the debentures were in no way secured; that the debtor had available cash, and cash resources, of $23,000,000 with which to pay interest or to retire debentures, which cash was drawing no interest.
Thereafter the petition which resulted in the decree from which these appeals were presented, was filed. It was filed by the debtor, was duly verified by the assistant treasurer, but no proof was offered in support of the allegations therein contained. The petition set forth the existence of the outstanding debentures of $50,000,000 and referred to Article 5, Section 2, of the trust indentures which empowered the trustee in its discretion, and if requested in writing by the holders of a majority in principal amount of the respective issues of debentures then outstanding, to declare the principal of all of said debentures and the interest unpaid thereon to be immediately due and payable in case of default in payment of interest or other specified defaults. It further stated that the court had directed the debtor not to pay the interest due and soon to be due. The petition further stated that if the trustee exercised its power to accelerate the maturity dates of the debentures the possibilities of the debtor's effecting a satisfactory and acceptable plan of reorganization would be materially lessened and the equities of the stockholders of the debtor corporation "materially affected." It reiterated the allegation contained in the petition for relief under section 77B that it was solvent and will be able to reorganize if unhampered by vexatious litigation and the threat of acceleration of the maturity dates of the said debentures. The petition further stated that it is the opinion of the debtor that a plan of reorganization might more easily be formulated and accepted if the trustee be enjoined from exercising its power to accelerate the maturity date of the said debentures.
The court denied the application after Atlas Corporation, the largest holder of debentures, had intervened and filed an answer. In its order denying the application, the court made the following finding:
"* * * it appearing to the court that said The Chase National Bank of the City of New York, as Trustee under the Indentures aforesaid, is not vested with any property or lien upon property of the Debtor corporation, and that no facts have been brought to the attention of this court justifying the issuance of an injunction as prayed for, and that this court has no jurisdiction over the person of the said Trustee under either of said Indentures, and that the power of acceleration contained in said Trust Indentures is a substantive right, personal to the Trustee under each of said Trust Indentures for the benefit of the debenture holders thereunder, and that this court has no jurisdiction over the subject matter of said petition, * *."
We are well convinced that the court was without power to stay the action of the trustee in accelerating the maturity date of the debentures for the debtor's failure to pay interest.
The trust indentures contained the following provisions respecting acceleration of maturity in case of failure to pay interest:
"Section 2. In case any one or more of the following events (herein sometimes called events of default) shall happen, that is to say:
"(a) default shall be made by the Corporation in the due and punctual payment of any instalment of interest on any debenture or debentures issued under this Indenture, as and when the same becomes due and payable, as therein expressed, and any ...