Matter of Baldwin United Corp.

43 B.R. 888, 11 Collier Bankr. Cas. 2d 537, 1984 Bankr. LEXIS 4783
United States Bankruptcy Court, S.D. Ohio·Decided October 19, 1984·No. Bankruptcy 1-83-02495·Published·Cited by 24 cases

Opinion

FINDINGS OF FACT, OPINION AND CONCLUSIONS OF LAW Re: DISPOSITION OF D.H. BALDWIN’S CLASS 2 LIMITED PARTNERSHIP INTERESTS IN CENTRAL COLORADO COMPANY

RANDALL J. NEWSOME, Bankruptcy Judge.

These Chapter 11 cases are before the Court upon the Debtors’ July 27, 1984 mo *890 tion to dispose 1 of certain partnership interests which debtor D.H. Baldwin Co. (“DHB”) holds in Central Colorado Company, and for an order authorizing the compromise of certain claims. Memoranda in opposition to this motion were filed by Linda Garner, Insurance Commissioner for the State of Arkansas; the Common Stockholders’ Committee (“Shareholders”); the J. Henry Schroder Bank & Trust Co. (“Schro-der”), a successor indenture trustee for holders of Baldwin-United Corporation 9%% subordinated installment notes due in 1994 and 10% subordinated debentures due in 2009; and the Federal Deposit Insurance Corporation (referred to collectively as “the Objectors” hereafter).

Both the DHB and BU Creditors’ Committees filed responses indicating conditional support of the Debtors’ motion.

On August 13, 1984, just three days before a hearing on this motion was scheduled to commence, Shareholders filed a motion in the United States District Court for the Southern District of Ohio to withdraw the automatic reference of the motion from the Bankruptcy Court. Shareholders asserted that a determination by this Court of Debtors’ motion to sell the partnership interest would require consideration of the Bank Holding Company Act of 1956, 12 U.S.C. § 1841 et seq., and accordingly that withdrawal of the reference was mandatory under § 157(d) of the Bankruptcy Amendments and Federal Judgeship Act of 1984.

Shareholders also requested an order to show cause why the hearing on Debtors’ motion should not be adjourned, asserting that they had not had adequate time to study the matter and that counsel could not be present for the hearing.

At 8:07 a.m. on August 16, 1984, United States District Judge Walter H. Rice overruled Shareholders’ motion to withdraw the reference, finding that consideration of the Bank Holding Act by the District Court or the Bankruptcy Court would be unnecessary and inappropriate, given the Federal Reserve Board’s primary and exclusive jurisdiction to determine matters arising under 12 U.S.C. § 1841 et seq. The Court further directed this Court to “conduct an evidentiary hearing on the question of whether the present motion was timely

In compliance with the District Court’s instruction, this Court addressed the timeliness issue as its first order of business at the August 16 hearing. Counsel for Shareholders and the Debtors stipulated that their representations pertaining to this issue were accurate, thus obviating the need for testimony. The matter was taken under submission, and findings of fact on this issue are set forth below. (See Findings of Fact 4 through 9.)

The Court denied the Shareholders’ request for an adjournment, but granted all objecting parties ten days to engage in discovery regarding certain aspects of the proposed sale of the partnership interest, particularly those pertaining to Ameri-trust’s arrangements with certain debenture and warrant holders, and to introduce additional evidence into the record. The evidentiary hearing on Debtors’ motion was thereafter convened, and continued in progress through August 17. Pursuant to Shareholders’ August 28 motion, the hearing was reopened on August 30 and continued into that evening.

At the close of the hearing, the Court allowed all parties to submit either proposed findings of fact or briefs by September 19, 1984. The Debtors, Shareholders, Schroder, the FDIC, the Arkansas Commissioner, and the Friends of the Fine Arts Trust all filed either briefs or findings. Due to confusion over page allowances, and pursuant to requests by both, Shareholders and Schroder were granted until October 12 to submit additional findings of fact not to exceed the 35 pages submitted *891 by the Debtors. In addition, at the September 20 status conference held in these cases, the Debtor and Shareholders were directed to enter into discussions regarding possible stipulations, particularly as to the percentage of debentures tendered. By telephone conference on September 25, 1984, Schroder was allowed to participate in those discussions and join in any stipulations. The additional proposed findings were duly filed on October 12, 1984, but no stipulations have yet been filed. 2

Having reviewed all the evidence and arguments presented, the Court hereby submits its Findings of Fact, Opinion and Conclusions of Law.

I. FINDINGS OF FACT

A. HISTORICAL OVERVIEW

1. Beginning in 1967 D.H. Baldwin Company owned all of the stock of the Central Bancorporation, Inc. (“CBI”), a Colorado bank holding company which at the time held twelve banks in Colorado. 3 Because of certain amendments to the Bank Holding Company Act enacted in 1970, and because of its ownership of a savings & loan institution and insurance companies, DHB was required to- divest itself of the CBI stock by no later than December 31, 1980. Because of a variety of legal problems and accounting problems, as well as a limited market for sale of all of the stock outright, DHB management devised an excruciatingly intricate means of divestiture. The centerpiece of the plan is Central Colorado Company, a limited partnership created to acquire 95% to 96% of the CBI stock. 4 CCB, Inc. was organized to act as general partner for the limited partnership, and was given 3.3% of the partnership’s equity in exchange for a $3.6 million contribution to the partnership. CCB is owned primarily by bank management.

The partnership has two classes of limited partnership interests. Class 1 partnership units entitle the holder to vote on certain matters and to receive partnership distributions. (Debtors’ Ex. 15, Sections 3.2; 8.5) The Class 1 limited partnership interests contributed approximately $4.8 million to the partnership and hold 4.3% of the partnership equity.

The Class 2 partnership interest is held exclusively by DHB, which contributed 95% to 96% of CBI’s stock to CCC in exchange for a 92.4% share of the partnership equity. (Debtors’ Ex. 15, Section 4.5(c)) A number of structural limitations were built into this class of interests in order to satisfy the Federal Reserve Board’s divestiture requirements. The Class 2 interest is entitled to receive partnership distributions, but has no voting rights. As a further means of preventing DHB from exercising any domination of CBI through its substantial economic interest, steps were taken to *892 neutralize that interest. Baldwin United Corporation (“BU”), DHB’s parent, issued approximately $170 million worth of Senior Term Debentures due in 1996 in three series: A, B-l and B-2.

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Matter of Baldwin United Corp., 43 B.R. 888, 11 Collier Bankr. Cas. 2d 537, 1984 Bankr. LEXIS 4783 (Ohio 1984).

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