BANKRUPTCY-JURISDICTION OF BANKRUPTCY COURT TO DETERMINE STOCKHOLDERS' VOTE NECESSARY TO APPROVE PROPOSED SALE OF CORPORATION'S ASSETS TO DEBTOR IN REORGANIZATION

Authors

Bernard Goldstone S. Ed., University of Michigan Law SchoolFollow

Abstract

Lessee railroad, which had leased and operated property of lessor railroad for many years, entered reorganization under section 77 of the Bankruptcy Act. Under the plan of reorganization promulgated by the Interstate Commerce Commission and approved by the bankruptcy court, lessor was given the alternative of selling its property to the reorganized railroad or having the lease disaffirmed by the debtor and its property returned. This proposal was submitted for acceptance by a majority vote of lessor's stockholders. Respondents, stockholders of lessor, sought an injunction in a state court of Georgia to restrain lessor's officers from certifying the acceptance in the event that a majority approved the sale, on the theory that state law prevented the sale of all corporate assets without unanimous approval by the stockholders. Before the state court acted, a majority of lessor's stockholders voted to approve the sale. The bankruptcy court then confirmed the plan, found the acceptance valid under state law and enjoined respondents from further prosecution of the action in the state court. Despite this, the state court enjoined lessor's officers from selling its property. The bankruptcy court then permanently enjoined prosecution of the state action and declared the state court injunction void. This decree was reversed by the circuit court of appeals. On certiorari to the United States Supreme Court, held, affirmed (two justices dissenting). The bankruptcy court had no jurisdiction to enjoin the suit in the state court, since the controversy did not involve property of the debtor within the exclusive jurisdiction of the court under section 77. Callaway v. Benton, 336 U.S. 132, 69 S. Ct. 435 (1949).

Recommended Citation

Bernard Goldstone S. Ed., BANKRUPTCY-JURISDICTION OF BANKRUPTCY COURT TO DETERMINE STOCKHOLDERS' VOTE NECESSARY TO APPROVE PROPOSED SALE OF CORPORATION'S ASSETS TO DEBTOR IN REORGANIZATION, 47 Mich. L. Rev. 1005 (1949).
Available at: https://repository.law.umich.edu/mlr/vol47/iss7/11