In the fiscal year ending June 30, 1933, one billion dollars worth of U. S. partnerships, companies and corporations went to the wall. When the owners and creditors of this vast collection of corporate wreckage took to the courts to salvage their wealth, they found themselves hampered by small recalcitrant groups of creditors and stockholders who blocked reorganization time & again until they were bought off for cash. With co-operation almost impossible, receiverships dragged into endless litigation with fat fees for lawyers on all sides.
Such was the situation in June 1934 when President Roosevelt signed the Corporate Reorganization Act, an amendment to the old Bankruptcy Act. Its prime provision, which became Section 77b of the Bankruptcy Act, authorized Federal judges to approve and make binding on corporate minorities any reorganization plan acceptable to two-thirds of each class of a company's creditors and a majority of each class of its stockholders. Ink was hardly dry on the new law before corporation lawyers crowded into Federal Courts all over the land to start reviving old bankrupt companies or to stave off the crash of concerns close to trouble. In Manhattan the first to apply for reorganization under Section 77b was Radio-Keith-Orpheum. Last week RKO was still in the courts but Paramount, whose reorganization could never have been completed without Section 77b. was out of the woods. First major company to complete organization under the new law was Glenn L. Martin Co. (bombers) whose plans for recapitalization were approved and adopted in Baltimore Federal Court in one month. Last week Editor Max Isaac of Corporate Reorganizations estimated that no less than 3,500 cases had been filed under the new law since its passage a year ago. Consequently Section 77b and corporate reorganizations are today one of the prime preoccupations of lawyers and businessmen everywhere.
Some reorganizations which made news last week:
McCrory. Operating 203 5ยข to $1 retail units in Pennsylvania, New York, Ohio, the South and Midwest, McCrory Stores Corp. slipped into bankruptcy in 1933, came under the broad roof of Section 77b a year and a half later. Old John G. McCrory, who founded the chain at Scottdale, Pa. in 1882, resigned as board chairman to be free to bid for the bankrupt properties. But in the stormy annals of McCrory's reorganization it was not John G. McCrory who played the major role but two brothers named George Keenan Morrow and Frederick Morrow.
In a rare interview in 1929. George Morrow remarked: "We are like Tunney. We have never been beaten." At that time the statement was true. The Brothers Morrow, having migrated to Manhattan from a farm near Toronto, had taken a hand in Gold Dust Corp., been enormously successful in revamping American Cotton Oil Co., had built up an enviable reputation as smart corporate reorganizers. After 1929 the Morrows were once set back on their heels when United Cigar Stores, which they controlled, went bankrupt. But their troubles with United Cigar did not prevent them from acquiring another damaged retail chain last year, McLellan Stores (TIME. Oct. 29).