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In re Lionel Corporation

United States Court of Appeals for the Second Circuit
722 F.2d 1063 (1983)


Facts

Lionel Corporation (Lionel) (debtor) was a toy train manufacturer that filed for reorganization under chapter 11 of the bankruptcy code. Lionel’s most valuable asset at the time was its ownership of 82 percent of the common stock of Dale, an independent, profitable electronics company. The Dale stock represented 34 percent of Lionel’s total assets. The creditors’ committee wanted Lionel to sell the Dale stock to finance the reorganization plan. Lionel filed an application to sell its Dale stock under § 363(b) of the bankruptcy code. Lionel also filed a reorganization plan based on the stock sale. The bankruptcy judge confirmed the sale of the stock for $50,000,000, finding that the sale was justified because the creditors’ committee insisted upon the sale and because failing to confirm the sale would delay the reorganization process. The committee of equity holders appealed the order. The equity holders argued that the sale deprived the equity holders of the procedural safeguards of a chapter 11 confirmation proceeding, including disclosure, solicitation, and voting. The district court approved the order, and the equity holders appealed to the United States Court of Appeals for the Second Circuit.

Rule of Law

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Issue

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Holding and Reasoning (Cardamone, J.)

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Dissent (Winter, J.)

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