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decided: March 30, 1970.



Burger, Black, Douglas, Harlan, Brennan, Stewart, White, Marshall

Author: Marshall

[ 397 U.S. Page 322]

 MR. JUSTICE MARSHALL delivered the opinion of the Court.

In this case the United States challenges the treatment given to its claim for unpaid taxes against an insolvent

[ 397 U.S. Page 323]

     corporation in reorganization under Chapter X of the Bankruptcy Act, 11 U. S. C. §§ 501-676. Under the reorganization plan approved by the District Court, the debtor, Hancock Trucking, Inc., will sell its chief asset, its Interstate Commerce Commission operating rights, to Hennis Freight Lines, Inc., for $935,000. The sale contract provides for a $300,000 down payment, with the balance to be paid in 78 monthly installments. Under the reorganization plan, the down payment will be used to satisfy certain wage and state and local tax claims in full, to satisfy 20% of the claims of the unsecured creditors, and to satisfy about 10% of the United States' tax claim of $375,386.55. The remainder of the United States' claim will be paid out of the monthly installments. The plan, an atypical one for a corporate reorganization, does not contemplate the continued existence of the debtor as a going concern, but amounts in substance to a liquidation.

The United States objects to that aspect of the plan that provides for partial or complete payment of the claims of unsecured creditors and state and local government units before full payment of the federal tax claims. This, the Government urges, violates the command of § 3466 of the Revised Statutes, 31 U. S. C. § 191, that "whenever any person indebted to the United States is insolvent . . . the debts due to the United States shall be first satisfied." Respondent urges that § 3466 does not apply to Chapter X proceedings, but that the United States is entitled only to "payment" of its tax claim, as provided by § 199 of the Bankruptcy Act, 11 U. S. C. § 599.

The Court of Appeals accepted respondent's theory, and affirmed the order of the District Court approving the plan. 407 F.2d 635 (C. A. 7th Cir. 1969). We granted certiorari, 396 U.S. 874 (1969), and we reverse.

[ 397 U.S. Page 324]

     Since the earliest days of the Republic, § 3466 and its predecessors have given the Government priority over all other claimants in collecting debts due it from insolvent debtors.*fn1 The present statute has existed almost unchanged since 1797,*fn2 and its historical roots reach back to the similar priority of the Crown in England, an aspect of the royal prerogative, founded upon a policy of protecting the public revenues.*fn3 The same policy underlies the federal statute, United States v. State Bank of North Carolina, 6 Pet. 29, 35 (1832), and it is established that the terms of § 3466 are to be liberally construed to achieve this broad purpose. Beaston v. Farmers' Bank, 12 Pet. 102, 134 (1838); Bramwell v. United States Fidelity Co., 269 U.S. 483, 487 (1926).

Section 3466 applies literally to the situation here. The debtor is concededly insolvent, and it is established that a tax debt is a "debt due to the United States" within the meaning of the statute. Price v. United States, 269 U.S. 492, 499 (1926). No provision of Chapter X explicitly excepts corporate debtors in reorganization from the application of § 3466, and so the only remaining question is whether the legislative scheme established in Chapter X, either by logical inconsistency or other manifestation of congressional intent, implies such an exception.

In approaching a claim of an implied exception to § 3466, we start with the principle, noted above, that the statute must be given a liberal construction consonant with the public policy underlying it. Applying that principle to an earlier claim that a statutory scheme implicitly excluded § 3466, this Court held that "only

[ 397 U.S. Page 325]

     the plainest inconsistency would warrant our finding an implied exception to the operation of so clear a command as that of § 3466." United States v. Emory, 314 U.S. 423, 433 (1941).

Here the Court of Appeals discerned an intent not to apply § 3466 to Chapter X proceedings from § 199 of the Bankruptcy Act, which forbids the approval of any reorganization plan which does not provide for the "payment" of taxes or customs due to the United States, unless the Secretary of the Treasury accepts "a lesser amount."*fn4 The Court of Appeals further supported its inference of exclusionary intent from §§ 216 (7) and 221 of the Act, 11 U. S. C. §§ 616 (7) and 621. Section 216 (7) provides that where a class of creditors dissents from a reorganization plan, the District Court shall provide "adequate protection for the realization by ...

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