These cases, which are here on certiorari to the Circuit Court of Appeals for the Third Circuit (289 U.S. 722, 53 S.Ct. 795, 77 L.Ed. 1473), were argued together. They arise out of the plan of reorganization of the National Radiator Corporation of Delaware dated February 11, 1931. The reorganization committee sought to effectuate its plan through securing, in a suit filed in the Western district of Pennsylvania, the appointment of receivers and a judicial sale of the property. In that suit the federal jurisdiction was invoked on the ground of diversity of citizenship; the original plaintiffs being citizens of states other than Delaware and one of them a citizen of the district in which the suit was brought. The corporation, a citizen of Delaware, was the sole defendant. The District Court appointed receivers, and entered decrees ordering the sale, confirming it, approving the plan, and directing the receivers to convey and deliver to the purchaser the entire property. The Circuit Court of Appeals affirmed the decrees. 64 F.(2d) 847. The petitioners in No. 64 urge that the final decrees should be reversed as to them on the ground that the court lacked equity jurisdiction or that the bill lacked equity. The petitioners in Nos. 62 and 63 urge that the decrees should be reversed as to them mainly because the property was sold at a grossly inadequate price. The petitioner in No. 65 is the plaintiff in a bill of review, brought in the same court, praying that the order appointing receivers be vacated. Its dismissal, which was affirmed on appeal, is alleged to have been erroneous.
In August, 1927, National Radiator Corporation was organized to effect a merger of six independent manufacturers of radiators and boilers for heating purposes. The net assets of the consolidated corporation, which included ten manufacturing plants located in five states and warehouses in four others, were valued at $26,192,261.72. The capital was represented by 270,000 shares of no par common stock; 60,000 shares of $7 cumulative convertible no par preferred stock; and $12,000,000 twenty-year 6 1/2 per cent. sinking fund gold debentures. These had been underwritten, and were marketed, by J. & W. Seligman & Co. and Bankers' Trust Company of New York. The terms governing the issue of the debentures and the rights and remedies of the holders thereof were fixed by an indenture between the corporation and the Bankers' Trust Company, as trustee.
In January, 1931, the management of the corporation concluded, after months of consideration and conference with the bankers, that a revision of its capital structure was desirable in order to effect a drastic reduction of the debenture liability and the elimination of all fixed charges, and that, to this end, default should be made in the payment of the February 1, 1931, interest on the debentures. Before the merger, the constituent concerns had operated successfully for many years. After the merger, the business ceased to prosper. By the end of 1931, all but three of the ten manufacturing plants had been closed; the outlook for the immediate future was obscure; and there was no definite promise of an early recovery in earning power.
A meeting of the board of directors was called for the purpose of taking formal action in respect to the payment of the February 1, 1931, interest. Although the corporation had suffered (including depreciation and sinking fund charges) large losses in each of the years 1928, 1929, and 1930, its financial condition was still excellent. On December 31, 1930, the ratio of current assets to all current liabilities was more than 10 to 1; the current assets, including raw material and stock in process and manufactured, being $5,054,007.30. The ratio of cash on hand to all current liabilities was then 3 1/2 to 1. It had $1,701,899.94 cash, and $1,132,563.17 in good accounts receivable; whereas its debts presently payable were only $46,787.60 (besides $293,339.58 for semiannual interest accrued on the debentures but not payable until February 1, 1931, $151,768.54 of accrued taxes and like items, and $60,000 in notes payable in one, two, and three years). The twenty-year debentures outstanding had been reduced from $12,000,000 to $10,716,000.
After presenting to the board the December 31, 1930, financial statement, the chairman said: