Consolidated Rock Products Co. v. Du Bois (SCOTUS 1941)

Summary

The Court held that the reorganization plan could not be approved because the record lacked the valuation and accounting findings necessary to determine the assets available to each claimant, the enterprise's earning capacity, and the fairness and feasibility of the proposed distributions. The parent could not avoid accounting for its obligations to its subsidiaries or insulate its assets after dominating and operating the subsidiaries as departments of its own business. The Court also held that the absolute-priority rule applies to solvent as well as insolvent companies, although creditors may receive securities of a different grade if they receive full compensatory treatment. No separate opinions were filed.

Holding

Adequacy of valuation findings. A reorganization plan cannot be found fair or feasible without adequate findings identifying the assets available to satisfy each class of claims and valuing the enterprise in light of its prospective earning capacity.

Parent's accounting and responsibility for subsidiary obligations. Consolidated could not avoid an accounting or shield its assets from claims arising from the subsidiaries' operations after assuming their management, commingling their property, and treating them as departments of its own enterprise.

Absolute priority and solvent reorganizations. The absolute-priority rule applies to reorganizations of solvent as well as insolvent companies, and senior creditors must receive full compensatory treatment before junior equity interests may participate.

Replacement of separate mortgages and allocation of enterprise securities. A plan is not per se unfair merely because it replaces separate mortgages with securities representing interests in the entire enterprise, provided creditors receive full compensatory treatment and each group shares in the whole enterprise on an equitable basis.

Consolidated Rock Products Co. v. Du Bois

Summary

Holding

Cited authorities

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