APPEAL from the Circuit Court of Cook County; the Hon. DONALD
J. O'BRIEN, Judge, presiding.
MR. JUSTICE ROMITI DELIVERED THE OPINION OF THE COURT:
This is another in a series of appeals concerning the liquidation of Apollo Savings and Loan, a liquidation which began over 10 years ago. The prior decisions are found in Lanigan v. Apollo Savings (1972), 52 Ill.2d 342, 288 N.E.2d 445 (Lanigan I); Lanigan v. Apollo Savings (1975), 30 Ill. App.3d 781, 332 N.E.2d 591 (Lanigan II); and Lanigan v. Apollo Savings (1976), 40 Ill. App.3d 927, 353 N.E.2d 239, appeal denied (1976), 64 Ill.2d 596 (Lanigan III).
• 1, 2 The basic issue in this case is whether the court properly allowed the receiver's plan for final liquidation, providing for the payment in full of all creditors but denying the stockholders any recovery. The stockholders contended that if final liquidation were delayed for 10 years there would be enough money to pay them as well. The creditors in such event would receive only the principal owed them plus 5 percent uncompounded interest thereon and no interest on the accrued interest which already has been owed them for several years. We hold that both Illinois law, as reflected in the prior Lanigan cases, and equity demand that the creditors be paid immediately and that the stockholders not receive the windfall of using the money owed to the creditors without paying a fair return for that money. We also agree with the trial court that since there is at present no surplus, the stockholders are not entitled to any part of the distribution. We also agree that there is nothing improper in Federal Savings & Loan Insurance Corporation (FSLIC) as receiver selling remaining assets (mortgages) to FSLIC as major creditor at a higher price than the receiver could obtain on the open market. Finally, we reject certain objections made by the appellants to experts' testimony since it is immaterial to these proceedings whether FSLIC-creditor intends to retain or sell the mortgages once it has purchased them from the receiver.
In general, the relevant facts in this case are undisputed. Until April 8, 1968, Apollo Savings and Loan transacted business on Michigan Avenue in Chicago. On that date FSLIC issued a cease and desist order prohibiting Apollo from paying a scheduled dividend because of the latter's seriously impaired financial condition. On April 26, 1968, plaintiff, Justin Hulman (then Commissioner of Savings and Loan Associations of the State of Illinois), issued an order taking custody of Apollo pursuant to section 7-8 of the Illinois Savings and Loan Act (Ill. Rev. Stat. 1969, ch. 32, par. 848), and appointed a receiver for the purpose of liquidating Apollo. The order stated that custody was taken because "the association was unable to continue operations," and that "an emergency existed which might have resulted in loss to the members or creditors of the association." On the same day Apollo's directors adopted resolutions consenting to the Commissioner's order. Thereafter, on May 2, 1968, the Commissioner instituted these proceedings and the circuit court of Cook County entered an uncontested decree of liquidation finding that "sufficient cause existed on April 26, 1968, and still exists for the custody, liquidation and dissolution" of Apollo.
Apollo was an insured institution within the meaning of the National Housing Act. (12 U.S.C. §§ 1724(a) and 1726.) The appointment of a receiver constituted a "default" (12 U.S.C. § 1724 (d)), and FSLIC was thereby required to pay insurance to Apollo's account holders. 12 U.S.C. § 1728(b).
In return for the payment of insurance, each account holder delivered to FSLIC an assignment providing in part, as follows:
"In consideration of the payment of insurance on said insured account, claimant hereby * * * (b) assigns, transfers and sets over to the Corporation [FSLIC] all of claimant's right, title and interest in and to said insured account * * *. It is understood that this assignment does not convey the assignor's interest in uninsured funds."
Pursuant to these assignments and the applicable provisions of the National Housing Act (12 U.S.C. §§ 1728(b) and 1729(b), (c)(1)), FSLIC became subrogated to the rights of the insured account holders in the assets of Apollo.
The originally appointed receiver resigned on September 30, 1968, and on the next day the State Commissioner appointed FSLIC as the receiver. This appointment was proper under the National Housing Act (12 U.S.C. § 1729(c)), and section 10-1 of the Illinois Savings and Loan Act (Ill. Rev. Stat. 1967, ch. 32, par. 921).
Besides the insured depositors, 589 depositors had on the date of default accounts exceeding the then applicable insurance limit of $15,000. These uninsured depositors had principal claims against Apollo in excess of $1,000,000. The principal amount outstanding has since been reduced to $191,939 but they are owed $1,057,628 in post-default interest.
The objectors to the liquidation are certain stockholders of Apollo. As the courts in both Lanigan I and Lanigan II pointed out, while a very few of these objectors purchased their stock before liquidation at par value, the vast majority did not. There are 617,433 permanent reserve shares of Apollo outstanding with a par share value of $1 per share. On April 8, 1968, Edward P. Kelly, chairman of the board and chief executive officer, controlled approximately 80 per cent of the reserve shares. His control was exercised through Transcontinental Insurance Agency, the record owner. Most of this stock was pledged as collateral on a note and was sold on or after May 16, 1972, for 15 cents per share, Transcontinental having defaulted on the note. In an attempt to reap "windfall profits," as the court in Lanigan II characterized it, these stockholders attempted to persuade the court in Lanigan I to rule that the depositors were not entitled to post-default interest. This attempt was unsuccessful. Later, in another attempt to reap unwarranted profits out of a speculative investment, they attempted to persuade the court in Lanigan II to bar distribution for a few years so that sufficient funds could be generated from the mortgages to pay the permanent reserve shareholders the par value of their shares. Again they failed. These same stockholders are now back, trying to persuade this court that we should delay final distribution for 10 years so that sufficient funds can be generated from the mortgages to pay the permanent reserve stockholders between $5.1 and $6.9 million (between about $8.26 and $11.18 a share), or if liquidation be ordered now, that they should receive the present value of that figure which they fix to be between $7.50 and $9.10 a share. We are no more convinced that they should receive such a "windfall" at the expense of the creditors than were the previous courts.
In moving on June 29, 1976, over two years ago, for authorization to sell the remaining assets of the receivership and for final distribution, FSLIC proposed to purchase in its individual capacity (not as receiver), all the real and personal property of the receivership. In consideration for the transfer of such assets it agreed to:
1. pay immediately the full amount of the principal due and claimed by the uninsured depositors (and of course to itself);
2. pay immediately the full amount of post-default and interim interest due to the uninsured depositors (and to itself);
3. assume and pay when due all valid claims against and debts and liabilities of Apollo except, of course, the claims of the shareholders since there was no surplus.
While the objectors produced considerable evidence in their attempt to defeat the petition, neither side seems to be in serious dispute, either as to the amount of the debts or the present value of the assets. According to the ...