The controversy is one as to the compensation of a referee in bankruptcy upon a composition with the creditors.
Realty Associates Securities Corporation was adjudged a bankrupt, July 10, 1933, upon the filing of a voluntary petition. At the same time the proceeding was sent to a referee in bankruptcy. The chief claims ($12,631,949.67) were on bonds issued under indentures between the bankrupt and a trust company as trustee. The other claims were only $208,133.90, of which amount one for $207,583.95 is contested and undetermined. On February 16, 1934, the bankrupt made an offer to the creditors of terms of composition pursuant to the statute (Bankruptcy Act, 30 Stat. 549, c. 541, § 12, as amended, 11 U.S.C. § 30 (11 USCA § 30)), which offer was accepted by the requisite majority. The District Judge found the composition to be for the best interests of the creditors (Bankruptcy Act, § 12d, 11 USCA § 30(d) and confirmed it. By its terms, all creditors were to receive cash for 15 per cent. of the amount of their claims as filed and allowed. Holders of bonds (after crediting the cash) were to extend and otherwise modify the obligation for the remaining 82 per cent. Creditors not bond-holders, an almost negligible number, were to receive bonds in the treasury of the company reduced and modified in the same way. The time for the payment of the principal was postponed until October 1, 1943; the rate of interest was lowered from 6 per cent. to 5; the interest accruing semiannually before October, 1943, was to be payable only out of earnings, but the liability was to be cumulative, and upon maturity of the principal was to be discharged in full; the creditors were to be represented on the board of directors; and there were to be restrictions on investments and on the creation of new debts. The composition did not call for the cancellation or surrender of bonds then outstanding. There was, however, to be attached to each of them a rider, described as a 'notation of reduction and modification,' which was to be evidence of the foregoing changes. Cash in the requisite amount was deposited with the clerk of the court, and other instruments, so far as necessary, were signed and filed.
In the meantime a question had arisen as to the compensation payable to the referee. 'Referees shall receive as full compensation for their services * * * one-half of 1 per centum on the amount to be paid to creditors upon the confirmation of a composition.' Bankruptcy Act, § 40a, as amended, 11 U.S.C. § 68 (11 USCA § 68(a). The creditors took the position that the percentage was to be computed upon the cash, and nothing else. The cash payments being $2,091,129.04, the compensation on that basis would be $10,455.65. The referee maintained that he was entitled to a percentage not only on the cash, but also on the face amount of the principal payable upon the bonds nearly ten years thereafter. Figuring the total cash and bonds at $13,008,038.31, he arrived at a fee of $65,040.19. The District Judge followed an intermediate course. 6 F.Supp. 549. Testimony was received that the bonds were then selling in the market, after public notice of the composition, at 37 per cent. of par, and that their market value would be 22 per cent. when the principal had been reduced by a credit of 15 per cent. in cash. The District Judge estimated the bonds as equivalent to cash to the extent of 22 per cent. of the par value of the principal. The total fees thus figured were $24,064.87. An order was made accordingly.
The creditors took no appeal, acquiescing in the award, though some believed it to be too large. The referee, however, did appeal. The Circuit Court of Appeals for the Second Circuit sustained the position of the referee, one judge dissenting. 74 F.(2d) 61. The decision was that in figuring the commissions the bonds were to be reckoned as a payment of the full amount of the principal payable thereunder. On the petition of the bankrupt and a creditor a writ of certiorari issued from this court. 294 U.S. 701, 55 S.Ct. 508, 79 L.Ed. --.
We think it an unreasonable view of the meaning of the statute (Bankruptcy Act, § 40, as amended, 11 U.S.C. § 68 (11 USCA § 68)) that would treat the bonds of the bankrupt in the situation here developed as equivalent to cash.