Before SCHNACKENBERG and KNOCH, Circuit Judges, and JUERGENS, District Judge.
JUERGENS, District Judge.
This is an appeal from the United States District Court for the Northern District of Illinois, Eastern Division, inquiring whether the United States is entitled to post-petition interest on unpaid taxes where its claims for taxes and interest have been secured by liens which arose and were perfected prior to the filing of the petition in reorganization.
The facts are not in dispute and generally stated are as follows:
The Kerber Packing Company filed a petition in reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., on February 20, 1957.
The Government filed claims against the estate; these claims are for Federal Insurance Contributions Act, 26 U.S.C.A. (I.R.C.1954) § 3101 et seq., withholding, unemployment and corporation income taxes owing by the debtor plus interest thereon. Prior to the reorganization proceedings the Government had obtained liens for a part of the taxes due to secure payment of these taxes and interest. Included in the Government's claims is $5,440.19 for interest on $37,501.17, which interest accrued between the date of filing the petition in reorganization and April 30, 1959. The propriety of this interest charge is the only contested matter.
Although this is a proceeding under Chapter X of the Bankruptcy Act, the rights of creditors are no greater than in ordinary bankruptcy proceedings and the right to claim interest subsequent to filing of a petition under Chapter X must be dealt with the same as claims in bankruptcy proceedings generally. United States v. Edens, 4 Cir., 1951, 189 F.2d 876.
The United States does not claim any post-petition interest on claims upon which liens had not been perfected prior to the filing of the petition in reorganization.
The referee disallowed the Government's claim to the extent that it represented post-petition interest and allowed the balance. His action was affirmed by the District Court. The United States in its appeal asserts that the District Court erred in holding that the tax lien of the United States is not entitled to payment of post-bankruptcy interest from assets of the debtor company.
For the reasons hereinafter set forth we agree with the District Court.
As a general proposition of long standing, it has been held in bankruptcy and other insolvency proceedings that interest upon claims stops with the initiating of the proceedings. This proposition, however, is subject to three exceptions.
The Supreme Court in Thomas v. Western Car Co., 1893, 149 U.S. 95, 116, 13 S. Ct. 824, 833, 37 L. Ed. 663, said:
"* * * As a general rule, after property of an insolvent passes into the hands of a receiver or of an assignee in insolvency, interest is not allowed on the claims against the funds. The delay in distribution is the act of the law; it is a necessary incident to the settlement of the estate. * * *"
The Supreme Court in City of New York v. Saper, 1949, 336 U.S. 328, 330, 69 S. Ct. 554, 555, 93 L. Ed. 710, had this to say ...