The Slumberland Bedding Company started in business in 1952 with a capitalization of $13,000. Within less than one year the corporation was "clearly heavily insolvent," having debts in excess of $85,000 and assets valued "at least several thousand dollars less than $42,250." Preferred creditor claims against the assets of the business amounted to more than $32,200. In this rather dismal context a petition for an arrangement under chapter XI of the Bankruptcy Act was filed. A plan was submitted which provided for independent capital to be put into the business to pay certain claims in full and to pay a twenty percent dividend to unsecured creditors. This twenty percent payment was to constitute complete and final satisfaction of all unsecured claims. The plan involved no substantial change which would reasonably tend to make an earning enterprise out of this floundering venture. However, the plan was in the best interest of present creditors since they would receive far more under this plan than they could hope to receive via liquidation; therefore, a majority of creditors approved the plan. But three general creditors petitioned to prevent court confirmation of the plan, basing their claim on the assertion that the arrangement did not comply with the statutory mandate that the plan be feasible. Held, petition denied. The test of feasibility is fulfilled if there is a reasonable assurance that the unsecured creditors will get what is provided for them under the plan. To be feasible a plan need not embrace a probability of future financial and business success for the enterprise. In re Slumberland. Bedding Co., (D.C. Md. 1953) 115 F. Supp. 39.
Paul B. Campbell S.Ed.,
BANKRUPTCY-TEST OF FEASIBILITY UNDER CHAPTER XI ARRANGEMENT,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol52/iss8/10