BANKRUPTCY - CORPORATE REORGANIZATION - SECTION 77B - CHAPTER X OF THE CHANDLER ACT - BOYD CASE RULE

A subsidiary of the defendant corporation filed a reorganization petition under Section 77 B of the Bankruptcy Act and defendant presented a claim of over nine million dollars as a creditor, the claim being grounded upon moneys paid by defendant to the subsidiary for its benefit, management and supervision fees, rental and interest charges, and declared but unpaid dividends. Defendant owned about ninety-eight per cent of the common stock of the subsidiary. As the result of objections by the trustee and preferred stockholders of the subsidiary, defendant's claim was compromised at five million dollars. The reorganization plan provided in part that the preferred stockholders should receive twenty per cent of the common stock in the new corporation, while the defendant was to receive seventy-three per cent of such stock.

On appeal by some of the preferred stockholders, it was held that the trial judge abused his discretion in approving the plan as fair, since the preferred stockholders should have received stock giving them priority on dissolution over the defendant, and at least an equal voice in the management of the new corporation. Taylor v. Standard Gas & Electric Co., 306 U.S. 307,618, 59 S. Ct. 543 (1939).