LOCATION: Pittsburgh Party Headquarters
DOCKET NO.: 170
DECIDED BY: Warren Court (1955-1956)
LOWER COURT: United States Court of Appeals for the Second Circuit
CITATION: 350 US 462 (1956)
ARGUED: Jan 18, 1956
DECIDED: Mar 26, 1956
Facts of the case
Media for General Stores Corporation v. Shlensky
Audio Transcription for Oral Argument - January 18, 1956 in General Stores Corporation v. Shlensky
General Stores Corporation, verus Max Shlensky, Securities and Exchange Commission et al
Mr. Chief Justice, Justices of the Court.
This is an appeal by certiorari for the Court of Appeals Second Circuit.
The petitioner, General Stores Corporation, seeks to reverse the -- the decision by an -- a divided bench of that Court which affirmed the District Court.
The Court of Appeals held that the debtor in this case, which filed the petition on arrangement under Chapter XI of the Bankruptcy Act with its unsecured commercial and trade creditors, cannot proceed in Chapter XI unless the debtor amended its petition to comply with the requirements for a corporate reorganization under Chapter X.
In filing its petition for an arrangement under Chapter XI, the debtor was seeking first an extension of time for the payment of its general, unsecured and commercial trade debts, and during the pendency of the proceeding, it hoped to obtain the liquidation of the balance of its very burdensome leases.
General Stores was formerly known as the D. A. Schulte, Inc.
It operated a large chain of the small shops selling tobacco and sundry offers.
As a result of the gradual change in merchandising in that type of business and perhaps the borrowing habits of the public, the company decided that if it continued in that type of business it meant financial disaster.
It decided that it would be necessary that it acquire successfully, established chain drugstore outlets.
This aim, on the part of the debtor company, was accomplished in 1953, and in 1954, by the purchase for some $4 million of the Ford Hopkins Company that had about 56 or 57 chains of drugstores.
And the purchase of the Stineway Company that had approximately the same number of retail drugstores.
Now, the acquisition of these two successfully established chains indicated to the debtor company a return of approximately 17% on the investment or the rather the purchase price.
And it should be noted that this 17% was anticipated to be a net return, a close to a net return because of the benefits of the tax laws carry forward that the company hoped to obtain.
The continued operation by the debtor of its remaining used units that it had and the very substantial expense that was occasioned by its burdensome leases was gradually resulting in a point arriving where it was unable to pay its commercial and trade debts as they were maturing.
In order to obtain the relief from its inability to pay its commercial debts as they were maturing, this debtor filed a petition for an arrangement under Chapter XI.
General Stores is a public stock corporation.
It has but one class of stock, common.
The stock is traded on the American Stock Exchange.
Part of the stock is registered with the Securities and Exchange Commission.
There are about 2 million shares of this common stock outstanding that has a par value of $1 a share.
And there are approximately 7000 shareholders in all, the public.
Now, except for this common stock issue, there is no other stock or security whatsoever issued by this debtor.
At the time that the petition was filed for an arrangement, the debtor owed about $2 million to the former owners of the stock of the Ford Hopkins Company.
This debt, which represented the balance owing on the purchase price, was secured by all of the stock of the Ford Hopkins Company and by all of the stock of the Stineway Drug Company.
This is the only secured debt.
And, of course, this obligation to this secured creditor was not to be affected by the proposed plan of arrangement.
In addition, this debtor owed to general unsecured, merchandise and trade creditors an amount somewhat in excess of $500,000.
It also owed to its wholly owned subsidiary, the Stineway Drug Company $1,300,000 representing moneys borrowed from time to time from that company.