Opinion
14000
February 12, 1935.
Before GREENE, J., Pickens, February, 1934. Affirmed.
Suit by the Courtenay Manufacturing Company and others against Issaqueena Mill, wherein J.W. Wallace was appointed receiver of the defendant, and separate petitions were thereafter filed by the receiver and others for the sale of certain assets of the defendant. From a judgment ordering sale of defendant's assets. C.J. Tarrant and other stockholders appeal.
That portion of the order of sale directed to be printed is as follows:
ORDER OF SALEThe original action herein is a creditors' and stockholders' bill brought by the plaintiffs for themselves and all other creditors and stockholders of defendant corporation, alleging the insolvency of defendant Issaqueena Mill, and asking for a receiver, with injunction against suits, and for an order of sale of the plant and assets of defendant corporation, and the winding up of affairs. The defendant answered, consenting to the receivership, and on September 9, 1930, his Honor, Judge T.J. Mauldin, appointed J.W. Wallace as receiver herein. He immediately qualified, and ever since has been acting as receiver of defendant corporation.
The petitioners herein have brought their two petitions, dated February 17, 1934, and February 23, 1934, respectively, the receiver joining as a petitioner for the purposes, as stated in the petitions, of obtaining the Court's instruction, and the other petitioners seeking orders of sale and payment of the net proceeds to creditors.
The first petition seeks an order of sale of 2,280 shares of preferred stock of Courtenay Manufacturing Company, and 3,000 shares and 1,970 shares (total 4,970 shares) of common stock of Courtenay Manufacturing Company, the property of defendant, Issaqueena Mill, but pledged to secure two large obligations referred to in said petition, the one for $342,422.50, and the other for $186,000.00, both claims now being the property of the petitioner, Cannon Mills, Inc.
Upon this petition (duly verified), as presiding Judge of the Thirteenth Circuit, on February 19, 1934, I signed a rule to show cause, directed to all creditors and all stockholders, common and preferred, of Issaqueena Mill, to appear before me in open Court, at Pickens, at 10 a.m., Saturday, March 3, 1934, to show cause, if any they had, why the relief sought should not be granted. It appears that this rule to show cause, with notice, was duly served upon all creditors and stockholders, and upon the attorney of record for Issaqueena Mill.
Upon the second petition there was a rule to show cause, signed by me, as presiding Judge of the Thirteenth Circuit, at Pickens, February 23, 1934, with notice to all creditors and stockholders, common and preferred, of defendant Issaqueena Mill, requiring them to show cause, if any they can, at the same time and place, why the relief sought, second petition, should not be granted, and all property and assets of defendant corporation be sold by the receiver in this cause. This rule and notice were duly served upon the creditors and stockholders by publication and by mailing, and served upon the attorneys of record, and upon the returns of those who appeared the evidence was taken by me, and the matters are now before me for decision of the issues.
The defendant corporation appears by its attorney of record, merely making a formal return, and submitting the matters to the decision of the Court. No creditors whatever are before the Court, objecting; in fact, the petitioners represent far more than 90 per cent. of claims against defendant corporation. Mr. H.K. Townes, attorney, filed a return for one creditor, but withdrew his opposition during the progress of the hearing.
J.D. Landford, Esq., appearing for C.J. Tarrant, a stockholder, and Mr. Landford and B.T. Leppard, Esq., appearing for Minnie Quinn Gassaway, in her own right, and as executrix of W.L. Gassaway, deceased, Susan G. Powell and Eula B. Quinn, stockholders, filed a return to the rule to show cause, objecting to the sales of the property asked for by petitioner, and urging that the sales be postponed until a more favorable time.
It is not made to appear that objecting stockholders own a large quantity of stock, so that the issue is made by a comparatively small part of the stockholders on the one hand, against the creditors, who are virtually the owners of the mill, and the majority of the stockholders on the other.
Much evidence was taken upon the issue of the right and propriety of an order of sale at this time, and also upon other issues, such as reduction of capital stock of the two mills, the purchase of machinery by the receiver, and other matters, which after careful consideration I think should (without prejudice) be excluded from the consideration of the Court at this time; the sole matter arising upon the petitions herein being the right and propriety of an order of sale of the assets of defendant corporation by the receiver at this time.
It seems clear from the evidence that the situation of this corporation, so far as the stockholders are concerned, is hopeless. The debts evidenced by proven claims in the hands of the receivers amount to $1,282,832.66; the interest on this indebtedness for three and one-half years since the receivership of itself amounts to $314,294.01; total, $1,597,126.67. The evidence indicates that the mill cannot nearly earn the interest on this large indebtedness, and the further it goes the worse its situation becomes.
According to the evidence, the total estimated value of the assets will hardly be in excess of $500,000.00, not only wiping out the stockholders, common and preferred, but showing a loss for the creditors of more than $1,000,000.00. In fact, Mr. Norwood and other large creditors have seen fit to dispose of their claims to Cannon Mills, Inc., at 18.42 cents on the dollar, and Cannon Mills, Inc., now holds claims against the defendant in excess of one and a quarter million dollars. The creditors wish the property sold, and wish to receive whatever dividend will be coming to them.
Moreover, the receiver reports that the plant is in bad shape, and that large replacements of machinery will be necessary to maintain the mills as a going concern and to enable it to compete in its line of manufacturing. It is evident that the creditors are the virtual owners of the property; in bankruptcy they could quickly effect a sale; and the Court would not feel justified, if it had the power, to carry on a speculative private industrial enterprise at the expense of the creditors, and against their objection, in the hope that ultimately the corporation might work out and pay something to the stockholders. The rights of the stockholders are subordinate to the rights of the creditors. And in the late case of Montgomery Crawford v. Arcadia Mills, 173 S.C. 464, 176 S.E., 589, 598, our Supreme Court says: "That the province of the Court of Equity in a proceeding of this nature, is, `to take possession of the assets of an insolvent corporation for the benefit of its creditors and forthwith to proceed to wind up, liquidate, sell out, and distribute all the assets among the parties entitled.'"
I gather from this case that the Court has no authority at the insistence of stockholders to hold off creditors indefinitely for the purpose of so operating a private enterprise at the risk of the creditors.
Messrs. J.D. Langford, Leppard Leppard, Morgan Cothran and Blease Griffin, for objecting appellants.
Messrs. B.F. Martin W.H. Beckerdite, for respondents.
February 12, 1935.
The opinion of the Court was rendered by
As stated by counsel for the appellants, practically the only question involved in this appeal is whether Judge Greene committed error in ordering a sale of the stock of Courtenay Manufacturing Company and of the entire property of Issaqueena Mill, "in the absence of an audit of the affairs of these plants."
While, ordinarily, the appellants, as stockholders, would be entitled to the audit requested by them, we do not think, from a careful and painstaking study of the evidence, stated in some detail in the Circuit order, that Judge Greene was in error in refusing the motion. The testimony discloses that an audit would be of no practical value to the appellants, or to any stockholder; for, as pointed out in the order of sale, the creditors are the virtual owners of the property. In other words, the valid claims of creditors are far in excess of the value of the plants. In these circumstances, it cannot soundly be held that the action of Judge Greene amounted to an abuse of discretion.
The exceptions are overruled, and the judgment of the Circuit Court is affirmed.
MESSRS. JUSTICES CARTER and BONHAM and MESSRS. ACTING ASSOCIATE JUSTICES J. HENRY JOHNSON and C.J. RAMAGE concur.