Bankruptcy – Limitations on Availability to Corporations of Arrangement Proceedings

General Stores Corporation filed a chapter XI petition for an arrangement of its unsecured debts, none of which were publicly held debentures, as allowed by section 322 of the Bankruptcy Act. The debtor corporation’s capital account consisted of over two million outstanding shares of common stock. held by 7,000 stockholders and traded on the American Stock. Exchange. A shareholder and the SEC moved under section 328 that the petition be dismissed unless amended to comply with chapter X of the Bankruptcy Act, calling for reorganization. The district court granted the motions, and its action was affirmed by the court of appeals. On appeal, held, affirmed, two justices dissenting. The needs of the corporate debtor determine which chapter is applicable. Where a complicated debt structure requires readjusting, and where there is a need for an accounting from management, or for new management, the controls offered by chapter X must be used. General Stores Corp. v. Shlensky, 350 U.S. 462, 76 S. Ct. 516 (1956).