Seatrade Corporation, Kulukundis Maritime Industries, Inc., Tramp Shipping and Oil Transportation Co., A. H. Bull Steamship Co., A. H. Bull & Co. (Inc.), American Tramp Shipping Development Corporation, Messenian Shipping Corporation and Star Line Agency, Inc., corporations engaged in the shipping trade, are all debtors in proceedings under Chapter X of the Bankruptcy Act, and attempts at a plan of reorganization having failed, are now in liquidation in the United States District Court for the Southern District of New York under the Act.1 The United States, a major creditor, moved for consolidation of the proceedings. The reorganization trustees, at first opposed, have now joined in seeking consolidation. Chemical Bank New York Trust Company is trustee for the bondholders under a First Preferred Mortgage and indenture of the debtor Seatrade Corporation, covering the vessel Easthampton. Chemical and others, principally seamen’s pension fund trustees, opposed the motion for consolidation. On reference to a Referee as Special Master, he recommended consolidation. The motion for consolidation was granted by the District Court, Thomas F. Croake, Judge, and Chemical Bank appeals. We find no error and affirm the order.
The debtor corporations are all owned or controlled by the former shipping magnate, Manuel E. Kulukundis. The Referee found that the debtor corporations were operated as a single unit with little or no attention paid to the formalities usually observed in independent corporations, that the officers and directors of all, so far as ascertainable, were substantially the same and acted as figureheads for Kulukundis, that funds were shifted back and forth between the corporations in an extremely complex pattern and in effect pooled together, loans were made back and forth, borrowings made by some to pay obligations of others, freights due some pledged or used to pay liabilities and expenses of others, and withdrawals and payments made from and to corporate accounts by Kuluk-undis personally not sufficiently recorded on the books. Evidence of these facts and others, such as dispersal of key personnel since most of the transactions occurred, support the Referee’s conclusion that auditing of the corporations’ financial condition and especially the inter-company relationships would entail great expenditure of time and expense without assurance that a fair reflection of the conditions of the debtor corporations would in the end be possible.
Appellant’s mortgage is under attack in the courts of Bombay, the Easthamp-ton having been sold in proceedings in admiralty and the proceeds being sufficient to satisfy the secured debt if the mortgage is held good.
We find no such limitation on the power of the reorganization court. See Soviero, Trustee v. Franklin National Bank of Long Island, 328 F.2d 446 (2 Cir. 1964); Stone v. Eacho, 127 F.2d 284 (4th Cir.), rehearing denied 128 F.2d 16, cert. denied 317 U.S. 635, 63 S.Ct. 54, 87 L.Ed. 512 (1942). While the record in the Soviero case indicates that there was evidence that the Bank had dealt with the bankrupt and its affiliates as one, the opinion does not make this a necessary foundation for the result. Moreover, we have here an additional factor not present in Soviero or Stone v. Eacho, the expense and difficulty amounting to practical impossibility of reconstructing the financial records of the debtors to determine intercorporate claims, liabilities and ownership of assets. The power to consolidate should be used sparingly because of the possibility of unfair treatment of creditors of a corporate debtor who have dealt solely with that debtor without knowledge of its interrelationship with others. Yet in the rare case such as this, where the interrelationships of the group are hopelessly obscured and the time and expense necessary even to attempt to unscramble them so substantial as to threaten the realization of any net assets for all the creditors, equity is not helpless to reach a rough approximation of justice to some rather than deny any to all.
By the order of consolidation, in effect the intercompany claims of the debtor companies are eliminated, the assets of all debtors are treated as common assets and claims of outside creditors against any of the debtors are treated as against the common fund, eliminating a large number of duplicative claims filed against several debtors by creditors uncertain as to which debtor was eventually liable.
This makes possible what has heretofore not been feasible, determination, allowance and classification by the trustees of claims of creditors prior to the preparation and submission of a plan of liquidation. This is required by the Act, 6A Collier on Bankruptcy (14th ed. 1965) ¶¶ 132, 212.
It has been questioned whether the consolidation of assets and liabilities should not await the court’s action on a plan of liquidation and be submitted as part of such a plan. No doubt this is and should be the normal course where feasible, but there are cases, of which this is one, where such determination to consolidate prior to the plan is required by the exigencies of the situation. Compare the classification, prior to the preparation and submission of a plan, of certain obligations of the debtor in Elias v. Clarke, 143 F.2d 640 (2d Cir. 1944), cert. denied 323 U.S. 778, 65 S.Ct. 191, 89 L.Ed. 622 (1945), the inclusion of underlying utility segments separately owned in a single reorganization, In re Pittsburgh Rys. Co., 155 F.2d 477 (3d Cir.), cert. denied sub nom. Philadelphia Co. v. Guggenheim, 329 U.S. 731, 67 S.Ct. 89, 91 L.Ed. 632 (1946), the determination of whether shareholders are entitled to participate prior to the preparation of a plan. In re Third Avenue Transit Corp., 238 F.2d 665 (2d Cir. 1956), cert. denied, Woolfson v. Doyle, 352 U.S. 1031, 77 S.Ct. 595, 1 L.Ed.2d 599 (1957).
We conclude that the order of consolidation was within the power of the reorganization court and that it was justified and indeed required by the facts of this case. The order of the District Court is affirmed.
1.
The Securities and Exchange Commission has heretofore declined to intervene in or comment on any of these proceedings, presumably because of the absence of public shareholders of the debtors.