BANKRUPTCY- MUNICIPAL REORGANIZATION - FAIRNESS OF PLAN

A local government district, finding itself hopelessly in debt, filed a petition for relief under Chapter IX of the Bankruptcy Act as amended. The municipal debt composition plan provided that bondholders would receive eight cents on the dollar. The evidence showed that a considerable quantity of bonds were bought by local landowners at much more than eight cents on the dollar, evidently for the purpose of being used in getting the approval of some such plan as proposed, in the expectation of an increase in value of their lands by improvements to be made by the debtor through a loan from the Reconstruction Finance Corporation. The plaintiff bondholders opposed adoption of the plan on the ground of discrimination in favor of those holders who also owned land in the district.

Held, the plan discriminated against bondholders not owning land in the district; the landowning bondholders should either have been excluded from participation in determining the requisite percentages of assenting bondholders, or else there should have been a separate classification whereby those creditors owning no lands could have voted and been recorded as such. Kaufman County Levee Improvement District No. 4 v. Mitchell, (C. C. A. 5th, 1941) 116 F. (2d) 959.