UNITED STATES SUPREME COURT DECISIONS ON-LINE

1. Pursuant to a plan of its creditors, an insolvent corporation was adjudged bankrupt; its assets were sold by the bankruptcy trustee, bid in by the creditors' committee, and acquired by a new corporation in exchange for its stock, all of which was issued to creditors of the old corporation in satisfaction of their claims, the old stockholders being eliminated. Non-assenting minority creditors were paid in cash. Operations were not interrupted by the reorganization, and were carried on subsequently by substantially the same persons as before.

Held:

(1) A "reorganization" within the meaning of § 112(i)(1) of the Revenue Act of 1928, so that, in computing depreciation and depletion for the year 1934, the assets of the new corporation, so acquired, had the same basis that they had when owned by the old corporation. Pp. 315 U. S. 181, 315 U. S. 183.

(2) The continuity of interest test was satisfied, since the creditors had effective command over the disposition of the property from the time when they took steps to enforce their demands against their insolvent debtor by the institution of bankruptcy proceedings. At that time, they stepped into the shoes of the old stockholders. P. 315 U. S. 183.

(3) The transaction here met the statutory standard of a "reorganization" even though, at the time of acquisition by the new corporation, the property belonged to the committee, and not to the old corporation, since the acquisition by the committee was an integrated part of a single reorganization plan. P. 315 U. S. 184. clubjuris

Page 315 U. S. 180

2. The full priority rule of Northern Pacific R. Co. v. Boyd, 228 U. S. 482, applies to proceedings in bankruptcy, as well as to equity receiverships. P. 315 U. S. 183.

3. The full priority rule gives creditors, whether secured or unsecured, the right to exclude stockholders entirely from a reorganization plan when the debtor is insolvent. P. 315 U. S. 183.

119 F.2d 819, affirmed.

Certiorari, 314 U.S. 598, to review a judgment affirming a decision of the Board of Tax Appeals, 41 B.T.A. 324, which overruled a deficiency assessment.