Full opinion text
JOHN R. BROWN, GOLDBERG and AINSWORTH, Circuit Judges. This appeal is from the findings and order of the district court resulting from our remand, by several orders, of all matters involved in the several cases growing out of the bankruptcy proceedings of Atlas Sewing Centers, Inc. The appeal consolidates all of the remaining matters at issue in these eases, with but two exceptions: (1) The question whether Atlas is finally to be adjudicated a bankrupt, which is now set for hearing in district court on July 13, 1967, and (2) the question of whether the onetime Trustee in Bankruptcy is to be held in civil and criminal contempt of this Court, concerning which we emphasize that we here make no finding, conclusion, or judgment at this time. The first shot was fired on June 22, 1962, when Atlas filed a voluntary petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., in the District Court for the Southern District of Florida. Atlas, a Delaware corporation with its principal place of business in Miami, Florida, was engaged primarily in retail sales of sewing machines through local outlets throughout the United States (and including Puerto Rico). Customers generally bought the machines by installments, using installment sales contracts or chattel mortgages. On December 4, 1961, about six months before the filing of the Chapter X petition, Atlas had entered into a financing agreement with the Jones Financial Corporation, whereby Jones lent money to Atlas in return for the pledge of installment sales security agreements. Atlas had to pledge $2.86 of paper for each $1.00 lent, and the agreement also provided for daily reports from Atlas, separaté bank áccounts, accounting for all repossessions, and attorney’s fees. Jones made an initial advance of $250,000 under this agreement, and continued to lend substantial sums. After the filing of the voluntary petition on June 22, 1962, (when the outstanding indebtedness was $431,780.) the Trustee, Irwin Ray, sought to procure additional financing from Jones. Jones and the Trustee agreed to recognize the priority of the December 4, 1961, agreement, and entered into a new financing agreement, dated August 16, 1962, which was similar to the December 4 agreement except that collateral was required at 200 per cent of the sum lent rather than 286 per cent. On August 20, the District Court authorized the Trustee to enter into the new agreement. Further large sums of money were advanced under the new agreement, amounting in the aggregate to more than $600,000. On June 4, 1963, however, Jones filed a petition in District Court requesting relief because the Trustee was disregarding the financing agreement by failing to deposit collections in the special bank account and instead commingling those funds, by failing to keep the proper two-to-one ratio of collateral to loan, and by failing to account for repossessed merchandise and indeed by re-pledging the repossessed merchandise as security with other lenders. The District Court held a hearing and on September 18, 1963, entered an order denying any relief to Jones. The same day Jones filed a notice of appeal to this Court. This appeal, questioning the denial by the District Court of Atlas’s petition for enforcement of its financing agreement, was numbered 20936. On October 4, Jones filed with this Court a request for interim relief to prevent irreparable harm. On October 11, this Court granted that request, ordering “The Trustee, Irwin Ray, Appellee, shall forthwith and henceforth (i) deposit and retain intact in a special account all collections representing proceeds of collateral assigned to Jones Financial Corporation, appellant; (ii) segregate and set apart all repossessed merchandise which is the subject of collateral assigned to Jones Financial Corporation, appellant, under the financing contract dated August 16, 1962 with Jones Financial Corporation; (iii) deposit in said special account any funds presently in the Trustee’s hands derived from the sale of repossessed merchandise covered by installment contracts previously assigned to Jones Financial Corporation as collateral under the financing contract dated August 16, 1962.” The Trustee moved to dismiss the appeal, filing a brief in support of the motion. Jones filed a reply brief on this issue. On December 23, we held that the motion to dismiss would be carried with the case. The order granting interim relief remained in effect. On January 29, 1964, Jones filed with this Court a petition for a rule to show cause why the Trustee should not be held in contempt of the October 11, 1963, order granting the requested interim relief. Annexed to the petition were two affidavits: one by George F. Meister, Jones’s Miami 'attorney, and the other by Walter S. Seidman, Jones’s president. Both affidavits claimed that the Trustee had flagrantly violated the October 11, 1963, order. After a response by the Trustee, and an answering affidavit from Seidman, we ordered, on February 26, 1964, that David W. Dyer, then District Judge, serve as Special Master to hold hearings and to report his findings and conclusions on the question of whether the Trustee had violated our October 11, 1963 order. Judge Dyer held hearings forthwith, and reported on March 12 1964, that the Trustee had violated one of the provisions of the October 11 order in that the Trustee had failed to segregate the proceeds of sales of collateral under the December 4, 1961, financing agreement. Upon receipt of Judge Dyer’s report we ordered, on March 25, 1964, that any party might file objections to the report, and that the civil contempt proceeding would be heard along with the argument of the appeal in No. 20936 on its merits, on April 15, 1964. On April 15, the Trustee filed a report of compliance with the October 11, 1963, order. On April 16, we held that the Trustee should segregate the proceeds from collateral under the December 4, 1961, financing agreement, in accordance with the October 11 order, and ordered the Trustee to file within 20 days a report of compliance. We also ordered: “Upon receipt of said report and any objections thereto, the rule for civil contempt will be marked submitted.” On May 5, 1964, the Trustee reported his compliance. On May 8, 1964, came the first appearance of the matters most germane to the present action. On that date J. Charles Burden, Jr., and the Trustee, as co-proponents, filed a plan of corporate reorganization of Atlas. On May 15, Jones objected to the Trustee’s May 5 report of compliance with the October 11, 1963, order. On June 17, Jones supplemented these objections with a report, supported by affidavits, which claimed that the Trustee and the Vice-President of Atlas, Mrs. Charlotte Blackburn, had secreted certain ledger cards recording individual sales which had been paid in full. The effect of such secretion, according to Jones, was that substantial sums of money collected by Atlas, and owing to Jones, were concealed. On June 19, 1964, the District Court held a hearing on the feasibility of the reorganization plan. At that hearing, Burden testified that he had deposited $100,000 which he had promised as an earnest of his good faith. He promised that he would provide an additional $900,000 for the company within 48 to 72 hours thereafter. On June 23, we ordered the Trustee to reply to Jones’s renewed charge of malfeasance within ten days. The Trus.tee replied on July 6, denying the allegations. On August 3, this Court approved Judge Dyer’s findings of March 11, and in the light of the new allegations by Jones again referred to Judge Dyer as Special Master, the question of compliance with the October 11, 1963, order. On August 4, 1964, the day after we re-referred the contempt matter to Judge Dyer, Burden and the Trustee, as co-proponents, filed in District Court an amended plan of reorganization. Under this plan, Burden was obligated to pay to the reorganized company $1,000,000 immediately. The plan further provided: The said J. Charles Burden, Jr., does further obligate himself, should the Continuing and Reorganized Company be in need of additional working capital, subsequent to the expenditures required and provided for by this instant Plan, or any Plan subsequently amended or modified, be approved by J. Charles Burden, Jr., to advance to the Continuing and Reorganized Company, in accordance with appropriate corporate acceptance, as contained in such resolutions as are adopted by the Board of Directors, an additional amount of $1,250,000.00 For his contribution, Burden was to receive 51 per cent of the stock of the newly reorganized Atlas. Of the remaining stock, 42 per cent was to go to a group of banks and other financing institutions. Atlas owed these banks and other institutions about 11.5 million dollars, secured by an assignment of Atlas receivables made in November, 1960. These banks and institutions were to receive the stock in proportion to the debts owed them. Four per cent of the new stock was to go to the Atlas bondholders, and three per cent to its old stockholders. On the same day, August 4, the District Court approved the amended plan. On September 4, 1964, the District Court issued an order confirming the plan. This order recognizes that Jones is a creditor under the August 16, 1962, financing agreement, but fails to mention Jones as a secured creditor under the pre-bankruptcy financing agreement of December 4, 1961. However, the plan provided that William O. Mehrtens (now Judge Mehrtens) be appointed Special Master to determine the amount, validity, and priority of all claims of would-be secured creditors. The order finally gave Atlas the option of paying off the Jones claim under the August 16, 1962, agreement in one of several fashions. Atlas was given until September 30, 1964, to choose which mode of payment it preferred. The order provided in part: “36. That the title to the property dealt with by the said Amended Plan shall be vested with the Continuing and Reorganized Company on such date as the Reorganization Managers, with the approval of the Court, may determine, and the said property, when transferred by the said Trustee to the Continuing and Reorganized Company, shall be free and clear of all claims and interests of the said Debtor, creditors, stockholder, except such claims and interests as may otherwise be provided for in the said Amended Plan, or in the order directing or authorizing the transfer or retention of such property.” When the court confirmed the plan, it was expected that Burden would provide forthwith the $900,000 needed for consummation and operating expenses. At the time of this order, the Trustee, short of funds, was borrowing from certain of Atlas’s escrow accounts. Burden gave the Trustee a check for $150,000 on September 4, as a payment towards the $900,000. This check was dishonored when presented for payment. Burden made no payments between 48 and 72 hours after the plan was confirmed; in fact he contributed nothing until November 6, 1964, when he paid in the sum of $400,000. On September 30, 1964, Atlas decided, as an option granted by the September 4, 1964, District Court order confirming the plan of reorganization, that it would pay Jones in cash all of the money owed under the August 16, 1962, financing agreement, and would, upon payment, obtain a release from Jones of all of Jones’s collateral held under that agreement. On October 1, 1964, Jones filed a notice of appeal from the September 4 order confirming the plan of reorganization. In Jones’s memorandum of January 10, 1967, the reasons stated for this appeal are given as: “Basically, Jones filed this appeal because the plan did not adequately protect Jones’ claim under the financing agreement dated December 4, 1961, erroneously placed in issue the validity of Jones’ claim under such contract, did not protect Jones’ administrative claim under the financing agreement of August 16,1962, and required Jones to surrender its collateral held under the August 16, 1962, agreement prior to the time its administrative expenses existing under such agreement had been paid in full.” In November, 1964, pursuant to our order of August 3, 1964, Judge Dyer as Special Master held his second set of hearings on the question of whether the Trustee was disobeying or had disobeyed our order of October 11, 1963. On December 19, 1964, an organizational meeting of the reorganized Atlas was held. Burden was elected chairman of the board, president, and treasurer. On December 22, Burden supplied the remaining $500,000, fulfilling finally his obligation to contribute $1,000,000 at the outset of the reorganized Atlas. On December 31, 1964, the District Court entered an “Order in aid of Consummation of the Plan.” In this document (a) the District Court estimated that under the December 4, 1961, financing agreement, Atlas owed Jones $30,-085.92 principal, $47,123.02 interest, and noted Jones’s claim of an attorney’s fee for which the Court reserved $15,000, totalling $92,208.98; (b) the Court found that under the August 16, 1962, financing agreement, Atlas owed $305,894.90 principal, $85,817.72 interest, and noted Jones’s claim of an attorney’s fee against which the Court reserved $25,000, total-ling $416,712.62. The Court ordered that the sum of these two totals, or $508,921.60, be deposited into the registry of the District Court by Atlas. It also ordered that once this sum was deposited, interest charges on the financing agreements would cease. The Court further ordered that upon release by Jones of all of its claims for collateral under the August 16, 1962, financing agreement, $388,751.78 of the registry fund would be paid to Jones. The $25,000 fund set aside for attorney’s fees was to await a finding by the District Court on their allowability. The Court further held that the $92,-208.98 deposited in respect of the December 4, 1961, financing agreement be held in escrow awaiting the decision by Special Master Mehrtens on the validity of Jones’s claim based on that agreement. The appropriate sum was deposited, and on January 5, 1965, Jones gave a receipt for $397,750.63, and released its claim on the collateral under the August 11, 1962 financing agreement. On January 22, 1965, the Trustee assigned and transferred to the reorganized company all of the Atlas assets, except two bank accounts and control over the litigation against the Beneficial Finance Company. On February 1, a new set of books was established for the reorganized company, into which were merged all previous books and records. On January 13, Irving M. Wolff, as attorney for Banco Popular de Puerto Rico, a creditor which had intervened earlier, moved in this Court that both of the appeals in No. 20936 be dismissed as moot, because Jones was by the December 31, 1964, order in consummation of the plan, assured of payment in full. On January 18, the Trustee joined in this motion. On January 25, Jones responded, stating that the appeals were not moot because the contempts remained to be decided, and because the order in aid of Consummation of the Plan provided that interest should cease to accrue after December 31, 1964, in contravention of the financing agreements. On January 26, Jones appealed from the December 31, 1964, Order in Aid of Consummation of the Plan. On February 3, 1965, we held that the motion to dismiss be carried with the case “at least until this Court has received and reviewed the report and recommendations relating to the contempt proceedings involved herein which may hereafter be filed by the Honorable David W. Dyer, United States District Judge, as Special Master, or until the further order of this Court.” Judge Dyer reported on March 4, 1965, on the Trustee’s compliance with the October 11, 1963, order. Judge Dyer’s findings disclosed substantial disregard by the Trustee, of the order, including commingling of funds supposed to be separated, concealment of records, and failure to account for funds received. Having received Judge Dyer’s report, this Court ordered, on March 12, 1965, that Irwin Ray as Trustee and individually, and Charlotte Blackburn, show cause why “an order for the institution of civil and/or criminal contempt proceedings should not be entered” against them. On July 1, 1965, the district court entered its “Order of Substantial Consummation of the Plan.” This order projected transferral of control of Atlas, in form and substance, and including the Beneficial litigation, from the Trustee to the reorganized company headed by Burden. However, except for the title of the order, all references to consummation of the plan are conditioned on the happening of future events. The order stated, in paragraph 7, “That the Assignment, executed by the Trustee on January 22nd, 1965, and heretofore approved by the Honorable Emett C. Choate, * * * shall become effective in accordance herewith when the payments hereinabove set out to be made in cash are actually paid by the Continuing and Reorganized Company [Atlas].” The court retained jurisdiction, even upon the conditional consummation, over the determination of secured creditors, all matters pending appeal, the contests for attorneys’ fees, and administrative matters. On September 28, 1965, this Court held that in the light of the developments in the case, that the United States Attorney for the Eastern District of Louisiana institute criminal contempt proceedings against Irwin Ray, charging him with contumacious failure and refusal to comply with our order of October 11, 1963. We also held that the submission on its merits on April 15, 1964, of the original appeal of No. 20936 (the original appeal was from the District Court’s order of September 18,1963, denying relief to Jones) be vacated and set aside, and that it be consolidated with the appeal from the District Court’s order of September 4, 1964, confirming the plan of reorganization. On October 8, 1965, came the report by Special Master (now Judge) Mehrtens. Judge Mehrtens found that the December 4, 1961, financing agreement between Jones and Atlas was valid, and that Atlas still owed Jones $30,085.92 as a principal sum (the identical amount estimated as due under this agreement by the District Court in its order in Aid of Consummation of the Plan of December 31, 1964). The Master also found that interest in the sum of $50,279.65 was due for the period up to September 8, 1965, and that reasonable attorney’s fees and expenses totalled $22,400.67. The total due and owing Jones was therefore $102,766.24, with additional interest of $12.41 per day running from September 8, 1965, until payment. After receiving and digesting the Special Master’s report, Jones, on October 21, 1965, moved this Court to consolidate its appeal, filed January 26, 1965, from the December 31, 1964, order in Aid of the Consummation of the Plan, with the other two appeals already consolidated and pending in No. 20936. Jones further moved that we stay filing of briefs and oral argument in the case until the District Court had finally passed on the validity and amount of Jones’s claims under the financing agreements especially noting that the District Court’s action with regard to Judge Mehrtens’ report as Special Master “may prove dispositive in whole or in part” of the appeals. On November 11, this Court granted the motion. In November, 1965, a group of banks, who, as the Bank Group, are appellants here, were currently financing Atlas (and then had more than $2,400,000 in Atlas notes secured by accounts receivable). They became alarmed because Atlas was failing to meet its obligations on the notes, Atlas, in conjunction with the Bank Group, procured from the district court an “Order Authorizing Interim Financing Pending Entry of Final Decree” on November 30, 1965. The order adopted, almost verbatim, the elaborate minutes of the meeting of Atlas at which this arrangement was set out. The order recited in part: “Upon' motion of the Continuing and Reorganized Company [Atlas]. * * *, it appearing * * that [Atlas] * * * has been unable to meet and discharge the indebtednesses which it assumed in accordance with the * * * Plan of Reorganization and with [its own] * * * contracts * * *, and it further appearing that the Co-proponent of the Plan [Burden], though he did * * * deposit the sum of $1,-003,000.00 for the acquisition of 51% of the new capital stock * * », the said Co-Proponent * * * did not discharge the other financial commitments required of him under the Plan and that he is in need of additional time.” The Court approved the Bank Group’s proposed arrangement for such interim financing. The arrangement provided that the Bank Group set up an operating fund of $100,-000. Each member of the Group contributed a percentage to this fund corresponding to the preeentage owed to that member of Atlas’ total outstanding debt to the Group. The operating fund would be used to pay operating expenses of Atlas, and would be replenished by collections of accounts receivable. A committee v/as elected by the Group to oversee the operation. The order approving this arrangement provided that secured creditors of Atlas who did not wish to participate as members of the Bank Group would have collections which were made by the Group credited to the non-participators’ accounts, but a collection fee of 30.51 per cent would be deducted and placed in the operating fund. The operating fund would be distributed pro rata at the winding-up of the interim financing scheme. The district court order did not require the Bank Group to account to the court for its activities. On December 21, 1965, the district court raised the collection fee deducted from remittances to non-participating institutions from 30.51 per cent to 50 per cent. Jones moved to confirm Judge Mehrtens’ report as Special Master. District Judge Emett C. Choate, who had heard most facets of the action until then, requested Jones to move that he disqualify himself at this point. Jones obliged, and on December 10, 1965, Judge Choate recused himself from any aspects of the case dealing with Jones, declining to decide whether the Special Master’s report was to be confirmed. Judge David W. Dyer, then Chief Judge, assigned this question to Judge (now Chief Judge) Charles B. Fulton. On July 22, 1966, the District Court recited that the plan of reorganization had not been performed, and that certain pending litigation “may require the Trustee in the future to come back and take charge of the operation in the event the Plan is not fully consummatedand that if that happened, “the records that might be required in such instance should be preserved apart from the records of the reorganization;” the Court then ordered that all of the relevant records be placed in a bonded warehouse in Miami, and that Burden furnish an accounting of all transactions subsequent to July 1, 1965. Finally, the Court ordered that Burden should show cause on August 5, 1966, why the final consummation of the Plan had not been accomplished. The District Court held hearings on August 5, 9, and 12, on this question. On August 17, 1966, the Bank Group entered into an agreement with the General Diversified Funding Corporation of Dallas, Texas (GDFC). Under this agreement GDFC was made agent for collection of the Atlas receivables. GD FC in turn farmed out these accounts to the General Electric Credit Corporation (General Electric), which classified the accounts as current or non-current, and which collected the current accounts. Non-current accounts were remitted to GDFC for collection. The Bank Group was to pay GDFC $20,000 per month. That sum was to be used to pay for (a) the cost of collections, (b) operation of “a nucleus of a company [Atlas], (c) assistance “in the prosecution of the present suit against Beneficial Finance Company” and any other Atlas litigation. Further, if after collection of all collectible accounts a deficiency still existed, then “said deficiency * * * shall be satisfied by one-third * * * of the net proceeds of any judgment or settlement obtained from the Beneficial Finance Company suit. * * * ” GDFC was allowed to terminate this agreement at will. The agreement also stated: “If on or before September 1, 1966, * * * [GDFC] and J. Charles Burden, Jr., do not own 80% of the authorized and issued stock of Atlas * *, [GDFC] * * * at its option may terminate its relationship with the [Bank Group] * * * under this contract by giving ten day notice. * * * ” Atlas, through Burden, “approved and accepted” this agreement. On August 24, the District Court held that Burden was obligated to deposit $250,000 in escrow for use in consummating the plan. If that sum was not deposited in ten days, the Court held further, Burden was obligated to deposit $75,000 in a demonstration of good faith. Unless the $75,000 was deposited, the District Court held that the Trustee would reassume control of Atlas. Burden, aggrieved by this order, appealed to this Court for an “emergency stay order and equitable relief.” Judge Ainsworth granted such a stay on October 20, 1966, to preserve the status quo and to prevent irreparable injury. This appeal by Burden was numbered 24157. On October 14, 1966, Judge Fulton, after lengthy consideration, granted Jones’s motion for confirmation of Judge Mehrtens’ report as Special Master. The Trustee appealed from this order, and this appeal was referred to as “the unnumbered appeal” until given No. 24449. On October 26,1966, this Court ordered that No. 24157 be expedited for hearing, and that Judge Ainsworth’s temporary-stay order of October 20 remain in effect until further order of this Court. On December 20, 1966, this Court granted the motions of certain members of the Bank Group to intervene in No. 24157. On December 30, Jones filed a motion to docket and dismiss the appeal in No. 24449 as untimely. On December 30, Jones filed another motion, this one asking for leave to intervene in 24157. In addition to matters discussed above, the contempt action of United States v. Ray, No. 23891, and the case of Chase Manhattan Bank v. Ray, No. 22852, were also awaiting a hearing in this court. Faced with this collocation of causes and parties, we directed each party concerned to file by January 23 memoranda analyzing all of the cases and their issues and ramifications, with attention to be given to how each case affected the others, and to how the several results possible in each case would affect the outcome of the others. We there stated that in making this out-of-the-ordinary request, we realized “that this case is just getting underway, but as it has such a definite bearing upon the major problem with which the Court is concerned — how to get this old case finally to an end — the parties are to do the best they can in informing the Court. * # *» On January 16, J. Edward Worton, as attorney for the Trustee, petitioned this Court for a modification of our stay in order that the District Court might consider settlement in the New Jersey litigation against Beneficial Finance Company. Beneficial had offered $250,000 and then $375,000 in settlement of the Atlas claims. On January 27, Judge Choate held a hearing on the feasibility of settlement of this litigation. On February 1, Judge Choate entered an order (amended February 3) authorizing the Trustee to settle the case for $375,000. After having read the memoranda submitted in response to our January 13 order, we concluded that a further factual hearing in District Court was required to settle certain issues before a meaningful appeal could be had. Therefore, on February 6, we ordered that Chief Judge Fulton hold such a hearing in which all parties could participate, requesting findings of fact, conclusions of law, and the appropriate orders, with respect to the matters enumerated in our order. We provided in this order that any party aggrieved or dissatisfied with any finding, conclusion, or order of Judge Fulton’s could perfect his appeal by a letter to the Clerk of the Court of Appeals. On February 15, Judge Fulton, complying with our order, scheduled hearings to start on February 23, and listed the following issues (which are a substantial paraphrase of those detailed in our order of February 6) as under consideration: “1. When, in what manner and to whom did Burden pay the original sum of $1,003,000? 1 A. By whom, to whom, in what amounts and for what purposes was said sum of $1,003,000 disbursed or used? 1 B. Was said sum of $1,003,000 misused or misapplied by anyone? If so, how, when, by whom and to what extent? 1 C. If there was misuse or misapplication thereof, in what way and to what extent, if at all, did it result in shortage of working capital for the reorganized company, or otherwise impede the consummation of the Plan as amended ? 2. When, how, to whom, for what purpose and by what specific judicial or corporate authority did Burden directly or indirectly advance, pay or personally guarantee the further additional sum of $1,250,000, or any portion thereof? 2 A. If Burden has advanced, paid or personally guaranteed sums in addition to the original advancement of $1,003,000, by whom, to whom, in what amounts, for what purposes and by what judicial or corporate authority were such additional sums used or disbursed ? 2 B. If Burden did pay, advance or personally guarantee such additional sums, to what extent, if at all, did the Trustee, the Reorganization Managers or the Pro Tern Directors or Officers of the reorganized company actively participate in the use or disbursement thereof? 2 C. If Burden has not fulfilled his commitment, under the Plan to furnish an additional sum of $1,250,000, to what extent is Burden now able and willing to furnish additional working capital ? 3. What is the present cash position of the reorganized company, taking into account the cash balance, if any, on hand in the so-called Bank Group ? 3 A. How much money is now reasonably needed to consummate the Plan of Reorganization as amended ? 3 B. If Burden is unable or unwilling to furnish such further sum as is needed to consummate the Plan, is there now available another source? 3 C. Over a period of the last six (6) months what has been the average monthly cash flow of the Reorganized Company? 4. Specifically, what did the District Court, the Trustee or any other party do, separately or in concert, to interfere with the management of the reorganized company ? 4 A. If there was such interference, how and when did it occur, and in what way and to what extent did it hinder the ultimate consummation of the Plan or otherwise detriment the reorganized company, its creditors or the parties ? 5. What is the present status of the reorganized company with respect to the Plan for Reorganization? 5 A. What things remain to be done in order to fully consummate said Plan? 5 B. Is there a likelihood that the Plan will be consummated; if so, when? 5 C. If it is not reasonable to expect that the Plan can be consummated, what procedures should now be envoked ? 6. Considering the present posture of this overall controversy, in what way and to what extent is said Stay Order benefiting or detrimenting the reorganized company, its creditors or the parties ? 6 A. Subsequent to October 14, 1966, did any Judge of this Court state to any party or counsel that the Stay Order of Judge Ainsworth, subsequently continued by this Court, eliminated the necessity for the filing of a Notice of Appeal, or that said Stay Order did prohibit the filing of a Notice of Appeal in No. 24449 (formerly captioned Unnumbered Appeal — Appeal from Judge Fulton’s Order of October 14, 1966)? Co-proponent Burden shall be present at the hearing. In addition to the material which he filed with the Clerk of this Court on February 14, 1967, he shall produce for inspection at the hearing all other material in his possession, custody or control which is relevant to the issues of this overall controversy.” On February 17, Burden moved this Court for a stay of Judge Choate’s order allowing settlement of the Beneficial litigation. We thought that the question of advisability of settlement was so intertwined with the unanswered questions set for determination by Judge Fulton that, on February 21, we denied a stay of Judge Choate’s order allowing settlement, and referred the question to Judge Fulton to be considered along with the other matters referred to him. Judge Choate's hearing on the feasibility of settlement had been a public hearing, and a representative of Beneficial was present in the courtroom. We felt that further hearings on the advisability of settlement should be confidential, so that Beneficial could not be present to learn what course Atlas would take in that suit. Therefore we authorized Judge Fulton to hold his hearings on this question in camera. In this order, we stated also, summarizing what had already taken place in pieces: “In;the exercise of this Court’s supervisory power and to assure an expeditious winding up of this protracted litigation, the entire proceeding is hereby committed to the direction and control of Chief Judge Fulton.” On March 7, we enlarged upon and enlarged Judge Fulton’s powers even more by amending our February 6 and 21 orders. We explained that Judge Fulton’s power to enter “appropriate orders” meant power to enter “both final order or orders as well as all interim orders which Judge Fulton may find it necessary and expedient to enter to conserve and protect the assets of the Trustee and the continuing reorganized company through appointment of a receiver, by injunction, or otherwise.” We further provided that any order entered by Judge Fulton had the automatic effect of modifying our stay to the extent of its own terms and that the parties aggrieved by such orders might petition this Court for further stays. In a per curiam opinion dated June 5, 1967, we finally disposed of No. 22852 (Chase Manhattan Bank v. Irwin Ray); everything in No. 20936 except the appeal from the Order of September 18, 1963; and No. 24449 (Irwin Ray v. Jones). Judge Fulton’s Findings and Conclusions Pursuant to our directions, Judge Fulton held an extended hearing in this case from February 23 to March 9, 1967. The transcript of the proceedings is more than 3,000 pages long and there are numerous and voluminous documentary exhibits. The court made 103 separate Findings of Fact which are grouped under eight main topics (A-H) and fifteen Conclusions and Recommendations. In reviewing the present status of Atlas, the district judge found that upon the evidence present adjudication in bankruptcy was the only alternative remaining. (However, he has issued a notice to all parties that a further hearing will be held before him on July 13,1967, at which time the court will consider whether an order should be issued dismissing the Chapter X proceeding or adjudicating the company a bankrupt.) He said that with slight exception Atlas’s creditors and stockholders have not received the cash and securities to which they were entitled under the plan, and that nearly $3,000,-000 would be required to consummate the plan and pay the company’s obligations. He found that Atlas has virtually no assets other than the claim against Beneficial, its rapidly dwindling accounts receivable and bank accounts totaling $16,-500; that since May or June 1966, all of its outlets have been closed, it has made no sales of any kind and has engaged in no activity other than the collection of a few of its accounts. He found that “Bank Group No. 1,” a group of lending institutions, had received court authority to collect pledged accounts receivable, and from this group another emerged known as “Bank Group No. 2” which, with General Diversified Funding Corporation and the participation of Mr. Burden (and without the knowledge and consent of the court), took possession and assumed control over all of Atlas’s assets and affairs. He said that the company should be described as a corporate corpse beyond any possibility of resuscitation and that the function of the findings is “in the nature of an autopsy, seeking to determine when the death occurred, and what were its causes.” As we have noted, the Findings of Fact were specific and we summarize them under the same main categories as were used by the district judge. A. Findings as to the $1,003,000. The court found that Burden paid $1,-003,000 by depositing various sums from time to time into various Atlas bank accounts; that as to payments by him of $100,000 in August and $400,000 in November 1964, in the absence of a satisfactory accounting from the Trustee, the court could not ascertain the use which the Trustee made of these funds. The sum of $502,500 was paid into the registry of the court where it is being held pending the outcome of litigation between the Trustee and Jones Financial Corporation. The court held that there was no contention and no evidence that the Trustee embezzled or converted any of these funds to his own use and that Burden had not proved the Trustee had misused or misapplied any portion thereof. B. Findings as to.the $1,250,000. The court found that under the plan Burden was required to advance as working capital an additional $1,250,000 when needed. On December 19, 1964, Burden was elected chairman of the Board of Directors and president and treasurer of Atlas, with authority to negotiate and consummate loans on behalf of the company. In January and February 1965, Burden and a relative Singletary borrowed $300,000 from a Louisiana bank which was deposited to Atlas’s credit, and Atlas accounts receivable with a face value of $432,000 were pledged as security to Woodstock, the family partnership composed of Burden and Singletary. Additional loans from other lending institutions were made by Burden secured by pledges of Atlas accounts receivable and most, if not all of these loans, were guaranteed by Burden’s personal endorsement (Burden contends his personal endorsement for the company is on loans totaling $1,962,694.10), plus personally guaranteed trade accounts in the amount of $271,109.26. The court said it was impossible to determine accurately how much money Burden borrowed for the company upon notes which he endorsed and that he had not approved the guarantee by him of the trade accounts. However, loans made by various lending institutions to Atlas with Burden’s personal endorsement exceed the sum of $1,250,-000. In sum, the court found that though Burden had personally guaranteed such loans, he had not complied with the requirements of the plan or met his commitment to lend the company $1,250,000 and that he was not willing or able to do so now. C. Findings as to Present Financial Status of Prospects. The court found in miscellaneous small bank accounts that there is a total of $16,-428.63 to Atlas’s credit. The sum of $638,878.91 has been paid or set aside toward consummation of the plan to pay fees and expenses of $136,378.91; Jones Financial, $391,916.54; Jones Financial deposit in registry pending disposition of Jones’s claim, $110,583.46; and Irving Trust Company for senior creditors’ group, $100,000. Additionally there is due the sum of $174,681.93 for certain obligations such as wages, federal and state taxes, unsecured claims of $100 or less and priority claims of landlord. Banco Popular de Puerto Rico has a secured claim based on a judgment in the sum of $112,118.35. Burden is unable and unwilling to provide further funds and there is no evidence that anyone else will do so. There are other claims such as that of the United States for taxes of $175,408.71, various banks of $1,990,-569.09 secured by pledge of Atlas’s receivables and the collection of accounts receivable continues to dwindle totaling only $29,610.67 in January 1967. The court found that Atlas’s liabilities exceed its assets by several million dollars. D. Findings as to Interference with Atlas’s Affairs. No party to the proceedings claimed that any judge of the district court did anything to interfere with the management of the reorganized company and the court so found from its own independent evaluation of the evidence. The court found that Burden was guilty of acts or omission which interfered with Atlas’s affairs in numerous particulars such as being late in paying in the original $1,-300,000, in not paying in the additional $1,250,000 required by the plan, in not furnishing the reorganized company the promised management personnel, in pledging Atlas’s furniture and fixtures to secure payment of a note for $14,000, in stopping payment of checks drawn and forwarded to the Director of Internal Revenue for the payment of taxes, in pledging accounts receivable of the company to obtain personal loans, in pledging shares of stock of the company before the stock was lawfully issued to him, in failing to make a proper accounting of his management of the affairs of the company though ordered by the court to do so. The judge found that Mrs. Blackburn, assistant secretary of the company, had admittedly falsified books and records, had admittedly concealed and hid books and records to deceive the auditors and had accepted the $14,000 note and mortgage previously described in the preceding finding. The court said the Trustee was guilty also in that he knew about and instructed Mrs. Blackburn to falsify books and records and to conceal and hide them; that he improperly withdrew funds from special escrow accounts of the company, filed misleading financial reports with the court, was arrogant and arbitrary in the manner in which he conducted the company’s operations. The court found that the charges that Wolff interfered with the management were not borne out by the record. It found that “Bank Group No. 1” was formed to collect Atlas’s receivables pledged to member banks and that without authority it took complete charge of Atlas and proceeded to liquidate it. In the meanwhile, one Mergner and GDFC then conducted a private sales program for a period of months until abandonment, all without the knowledge and consent of Burden, never having been disclosed to the court and no accounting was ever made to the company or court by Mergner, GDFC, Rutig or “Bank Group No. 1.” The court pointed out numerous transactions between the members of “Bank Group No. 2” and Mergner and GDFC whereby there was assignment of Atlas’s pledged accounts receivable to GDFC for collection, thence to General Electric Credit Corporation without any accounting to Atlas. The court found that the misconduct referred to should not pass unnoticed and unrectified and each of the wrongdoers should be surcharged at the appropriate time. E. Findings as to Consummation of Plan. The court found that Atlas’s total assets cannot be definitely ascertained at the present time, though it has bank accounts totaling $16,500 and outstanding accounts receivable with a net value of some $500,000; also, if the Beneficial litigation is settled, an additional $375,000 will be realized so that the combined assets will total less than a million dollars, whereas liabilities are two or three times as great. There is no likelihood that the plan of reorganization will be consummated and since the company no longer has any business activity or prospects for additional moneys, adjudication seems inevitable. F. Findings as to Continuation of Stay Orders. The court held that continuation of the stays would not benefit the reorganized company or any of the parties and that the stay order should be dissolved. G. Findings Regarding Notice of Appeal in No. 24449. The court found that there was no evidence that any judge of the district court made any statement of any kind to any person concerning the necessity for filing a notice of appeal in the above matter. (Docket 24449 has been disposed of by this court by its per curiam dated June 5, 1967 which affirmed Judge Fulton’s confirmation of the report of the Special Master. Therefore, further consideration of matters pertaining to this docket number is unnecessary since the case is now moot.) H. Findings as to Beneficial Settlement. The court found, after an in camera hearing, that the offer to settle the Beneficial claim for $375,000 should be promptly accepted and that although there has been an appeal in the court’s order authorizing settlement, the order has not been superseded and, therefore, there is no impediment to the settlement of the litigation. The court handed down its Conclusions and Recommendations agreeably to the preceding findings and also recommended that Burden be removed as officer and director of the company; that the Trustee be relieved of his duties; and that a Receiver be immediately appointed to protect Atlas’s assets. Accordingly, the district judge removed Burden and the Trustee, Irwin Ray, and appointed Horace F. Cordes, Receiver, and placed the Receiver in charge of the assets of the reorganized company with full authority to collect the outstanding debts due it but without authority to disburse funds without prior authorization of the court. The Trustee and Burden and all other parties were ordered to deliver possession and control of the assets, books, papers and records of Atlas to the Receiver and the Receiver was authorized to proceed to complete the compromise of the pending litigation with Beneficial Finance Company. The Bank Group and Burden have appealed Judge Fulton’s order. Appeal of Bank Group The Bank Group raises three principal points of error, as follows: 1. The district judge erred in ordering sequestration of the bank accounts of and accounts receivable pledged to the Bank Group and directing the newly appointed Receiver to take over. 2. The district judge erred in determining the Bank Group to be guilty of legal misconduct. 3. The district judge erred in authorizing the Receiver to compromise the Beneficial Finance Company litigation. Appeal of Burden Burden specifies numerous errors; in fact, he has taken specific exception to 45 of the trial judge’s 103 Findings of Fact. However, the principal points which he has raised are as follows: 1. The district judge erred in failing to consider the points previously raised before Judge Choate in connection with Judge Choate’s order of August 24, 1966, where he found that a further contribution of $250,000 by Burden could consummate the plan and ordered Burden within ten days to pay $75,000 into the registry of the court under penalty of turning the company back to the same Trustee who heretofore had charge of the company. 2. The district judge erred in not recusing himself because he had strong feelings and preconceived conclusions about the case. 3. The district judge erred in conducting his inquiry about the conduct of Burden and the Bank Group after the order of substantial consummation of July 1, 1965, when the Trustee turned over to Burden “a practically hopeless situation,” rather than to inquire into the reason why the company had not been turned over to Burden in January 1965. 4. The district judge erred in not laying “a sufficiently broad predicate” during the trial to inquire into the company’s situation before Burden’s advent on the scene and into circumstances surrounding the Beneficial litigation. 5. The district judge erred in ordering sequestration of the bank accounts of and accounts receivable pledged to the Bank Group and directing the newly appointed Receiver to take over. (This is the same as assigned error No. 1 of the Bank Group.) The argument of these appeals from the Order of Judge Fulton and the two earlier ones of Judge Choate requiring (a) posting of an additional $250,000 in working capital or suffer adjudication and (b) ordering the settlement of the Beneficial case has served to reduce the issues for our discussion and determination. Some- pertain to Burden only, others to the Bank Group. As to many the attack of each, if not the supporting theory, is parallel. At the outset it bears emphasis to point out some things Judge Fulton did not do. He has not yet surcharged any party. He did find that facts revealed at these hearings indicate that proceedings on a proper charge and opportunity for hearings are warranted. He did not hold that the assignment of accounts receivable to the members of the Bank Group is invalid or that the Banks are not entitled to collections thereunder. He did not hold that the Receiver, for the use of the Estate or other creditors, is entitled to the benefit and use of such receivables and the collections under them. He held a Receiver was essential for conservation until the rights of all can adequately be determined. He did not determine when or to whom any sequestered properties were or are to be distributed by the Receiver. He did not adjudicate the Debtor. He merely found that the facts of nonperformance of the Plan reveal a basis for the show cause order and hearing scheduled for July 13, 1967 to determine whether on the present record and such further evidence as might then be offered, the proceedings should be dismissed or the Debtor adjudicated a bankrupt. I. THE BENEFICIAL SETTLEMENT Upon the recommendation of the New York-New Jersey counsel acting for the Trustee and the Company, then counsel for the Trustee Ray sought approval of the proffered settlement of the suit against Beneficial for malfeasance in the collection of millions of dollars of customer contract-accounts receivable. Judge Choate after a hearing held that it was fair and reasonable, and he therefore ordered the Trustee and the Company to settle the case for $375,000. Burden’s motion to stay this order aroused some concern whether the public hearing with the representative of the alleged tortfeasor as a more than ordinarily interested observer might have hampered a full exploration of the strengths, the weaknesses, the values and dangers of the lawsuit, and accordingly we ordered Judge Fulton in the hearings then scheduled to re-examine this fully, expressly providing for in camera hearings if thought wise. These were held. Every party (and counsel) other than Beneficial was afforded an opportunity to appear and participate. No one who sought permission to appear was denied the right. Those in actual attendance included Burden, his counsel, Rutig for the Bank Group, Mergner for GDFC, counsel representing the Bank Group, the Trustee, the SEC, counsel representing unsecured creditors, Irwin Ray, Trustee, Irving J. Wolff, and Sam Daniels, amicus curiae. Both Rutig and Mergner testified. All were subject to such cross-examination as was desired, and the Court invited the production of testimony. No one was cut off. Although protesting that the settlement' amount is inadequate, neither Burden nor the Bank Group desires that if settlement is to be ordered, the chances for its consummation be imperiled by any detailed discussion in this opinion. It is sufficient to say that their principal thrust, both here and in the in camera sessions, was that the value of the lawsuit should be re-examined by new counsel. A Court need not lecture counsel on the perils and pitfalls of a settlement or the delicate nature of it both in evaluation and in effectuation. We do not minimize the seriousness of this problem or the heavy responsibility which inexorably rests upon the shoulders of the District Judge and now this Court. One of the great unknown factors is, of course, the extent to which the adversary might go in increasing settlement demands or, perhaps more disastrously, determine to withdraw all settlement overtures. Under these circumstances we think the record fully supports the exercise of that delicate judgment in the light of appropriate factors, Florida Trailer & Equipment Co. v. Deal, 5 Cir., 1960, 284 F.2d 567, 94 A.L.R.2d 638. We therefore affirm the order of Judge Fulton and in effect affirm the earlier order of Judge Choate. We have heretofore denied stays so this order to settle is fully effective. II. DISQUALIFICATION OF JUDGE FULTON Burden alone complains that we should not have sent this case back for the extraordinary hearing before Chief Judge Fulton, and that Judge Fulton should' have recused himself. A part of this complaint is that Judge Fulton misunderstood the contentions earlier made by Burden in his petition for extraordinary relief first made to the District Court and then presented to Judge Ainsworth, upon which he entered the stay of October 20, 1966. Burden insists that he did not in these documents suggest that his management and operation of the Company was imperiled and interfered with by any actions of the District Judge. Rather, he insists, all he was contending was that between Trustee Ray and counsel, Irving Wolff, he had no opportunity to run the Company once he took over either during the period January 1, 1965 to June 30, 1965, or from July 1, 1965 on to the present. But he now says Judge Fulton erroneously interpreted his contentions to charge that the judge or judges of the Court were involved and that his natural desire to see the image of the Court fully protected led him to a generally hostile attitude toward the claim of interference by Ray and Wolff. This became aggravated because Judge Fulton had since become Chief Judge and it was his entire Court for whom he now had a concern. This leads him to contend that this Court should have appointed a judge from outside the Southern District of Florida since Judge Fulton, so closely aligned with the position of the Court he thought under attack, could not give it that impartial treatment characteristic of judicial proceedings. We find these attacks completely without merit. In the first place, we read Burden’s petition for extraordinary relief which induced the stays of Judge Ainsworth and the confirmation of that by the Court to charge that the reorganization judge allowed himself to be overborne by the Trustee and attorney Wolff and that at least to this extent the Court itself was responsible for the admittedly poor management of the reorganized Company. It was not thought, nor is it now thought, that corruption was charged; but, however nicely phrased, both the papers and the arguments now made before us at this hearing reveal Burden’s deep-seated conviction that it was the action or non-action of the reorganization judge that brought about the business failure. Even more pointed, this Court itself put that interpretation upon these papers and we defined the issue categorically. Chief Judge Fulton was entirely fit to hear this proceeding. The record bears out his careful, patient consideration of the case. We therefore affirm Judge Fulton’s order as to these charges. III. INTERFERENCE BY TRUSTEE AND ATTORNEY WOLFF WITH BURDEN’S OPERATION Apparently as an excuse for admitted nonperformance of the Plan of Reorganization Burden now insists that his inability to perform is due to the actions of Trustee Ray and Burden’s counsel Wolff. As we understand these charges, he claims this began in early January 1965, notwithstanding the entry of the order of January 22, 1965, transferring operations to the reorganized and continuing Company. To an extent at least the evidence on the hearings below tended to bear out the fact of actual operations of an intensive nature by the Trustee. For during this period the Trustee wrote not less than 5,000 checks apparently in satisfaction of indebtedness or other obligations of the Debtor or the reorganized Company. But Burden’s contention does not stop with June 30, 1965. He insists the interference continued even after July 1, 1965, at which time Judge Dyer, then Chief Judge, entered the order of substantial consummation. From that time forward there was no question but that the full operational responsibility was lodged in the Company, its officers aand board of directors. Presumably this was within the control of Burden since under the Plan he was to receive 51% of the voting stock. Judge Fulton, after a full exploration of these charges and after listening to testimony of Mr. Burden which went on during many days of the prolonged hearing, rejected these charges. After penetrating questioning on argument we were never able to satisfy ourselves how this state of affairs could have come about or why Burden, claiming now to have been conscious of all that was going on, did nothing, certainly nothing so far as the District Court was concerned. For he now candidly acknowledges that the first complaint ever made to the Court about this state of affairs was in his answer to the show cause order issued by Judge Choate on August 24, 1966. Judge Fulton was therefore warranted in finding that this did not constitute a valid excuse for nonperformance of the Plan. Such finding is certainly not clearly erroneous. Fed.E.Civ.P. 52. We emphasize the element of an excuse for nonperformance because we do not wish to affect in any way the litigation which Burden apparently has against the former Trustee Eay or his former counsel Wolff. We can fully understand the difficult predicament, if, as he now asserts, his own counsel was in collaboration with others to bring about a detriment to him. We make no finding against attorney Wolff, but on the other hand the affirmance of this part of Judge Fulton’s order is not to be considered in any sense an exoneration of counsel Wolff. That is for another day, another time, and presumably another case. IV. BUEDEN’S OBLIGATION FOE WOEKING CAPITAL Although this is related to the basic question of the power of the Court, later discussed (see Part V), Burden alone asserts that Judge Fulton was in error in finding that he had not fulfilled the obligation of the Plan to supply up to an additional $1,250,000 for working capital as needed. This is basically a question of the interpretation of the meaning of that provision in the setting of the whole Plan. Burden contends that this obligation was satisfied by his furnishing additional funds from lending banks under promissory notes of the Company to which he added his personal endorsement. Judge Fulton presumably credited the testimony that these notes bearing Burden’s personal endorsement aggregated approximately $1,900,000. If personal endorsements on promissory notes made by the Company would in every instance satisfy the conditional requirement “to advance to the Continuing and Eeorganized Company” needed “additional working capital,” then Burden has, we may assume, fully complied with that provision of the Plan. But there are several reasons why we agree with Judge Fulton’s conclusion that under these circumstances these personal endorsements did not satisfy this contingent but very important obligation. The first, and perhaps the foremost certainly from an economic standpoint, is that these notes were secured by the assignment of the Company’s customer accounts receivable. As the initial petition for reorganization and the Plan as accepted reveal, many of the difficulties of the Company were directly attributable to the absence of capital which was not immobilized under pledges of accounts receivable. Under these arrangements, the Company’s position was not effectually bettered, and certainly not so in the light of the history revealed by this record of substantial defaults by customers which called for a continuous rotating substitution of new and better collateral. There is no evidence that any of these sums — certainly not up to $1,250,000— would have been advanced on the Company’s and Burden’s signature alone, unaccompanied by the pledge of receivables. The infusion of additional working capital is not effectuated by fettering the Company’s existing quick assets. Just as significant, however, is the construction put on that Plan by Burden, the Company, and, for that matter, the Bank Group. As we discuss later in Part VIII, Burden as the president of the Company filed a petition before the reorganization Judge which resulted in entry of