In re Lionel Corporation

722 F.2d 1063 (1983)

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In re Lionel Corporation

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

Facts

Toy-train manufacturer Lionel Corporation (Lionel) (debtor) filed for reorganization under Bankruptcy Code Chapter 11. Lionel’s most valuable asset was its ownership of 82 percent of the common stock of Dale, an independent, profitable electronics company. The creditors’ committee in Lionel’s bankruptcy wanted Lionel to sell the Dale stock to finance an envisioned reorganization plan. Lionel filed an application in the bankruptcy court seeking permission under Bankruptcy Code § 363(b) to sell its Dale stock. Lionel also filed a reorganization plan conditioned on the stock’s sale. The bankruptcy judge confirmed the stock’s sale, finding that justification was sufficiently shown by the creditors’ committee’s insistence upon the sale and the fact that failing to confirm the sale would likely delay the reorganization process. The district court approved the bankruptcy judge’s order. A committee representing Lionel’s public shareholders appealed the sale order to the court of appeals, arguing that approving the sale prior to approving a reorganization plan deprived the equity holders of the Bankruptcy Code’s procedural safeguards, including disclosure, solicitation, and voting.

Rule of Law

Issue

Holding and Reasoning (Cardamone, J.)

Dissent (Winter, J.)

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