SECTION SIXTY-FIVE DECLARATION AND PAYMENT OF DIVIDENDS § 65. Declaration and Payment of Dividends.-a Dividends of an equal per centum shall be declared and paid on all allowed claims, except such as have priority or are secured. b The first dividend shall be declared within thirty days after the adjudication, if the money of the estate in excess of the amount necessary to pay the debts which have priority and such claims as have not been, but probably will be, allowed, equals five per centum or more of such allowed claims. Dividends subsequent to the first shall be declared upon like terms as the first and as often as the amount shall equal ten per centum or more and upon closing the estate. Dividends may be declared oftener and in smaller proportions if the judge shall so order: Provided, That the first dividend shall not include more than fifty per centum of the money of the estate in excess of the amount necessary to pay the debts which have priority and such claims as probably will be allowed: And provided further, That the final dividend shall not be declared within three months after the first dividend shall be declared. c The rights of creditors who have received dividends, or in whose favor final dividends have been declared, shall not be affected by the proof and allowance of claims subsequent to the date of such payment or declarations of dividends; but the creditors proving and securing the allowance of such claims shall be paid dividends equal in amount to those already received by the other creditors if the estate equals so much before such other creditors are paid any further dividends. d Whenever a person shall have been adjudged a bankrupt by a court without the United States and also by a court of bankruptcy, creditors residing within the United States shall first be paid a dividend equal to that received in the court without the United States by other creditors * Amendments of 1903 in italics. before creditors who have received a dividend in such court shall be paid any amounts. e A claimant shall not be entitled to collect from a bankrupt estate any greater amount than shall accrue pursuant to the provisions of this act. Analogous provisions: In U. S.: As to first and subsequent dividends, Act of 1867, §§ 27, 28, R. S., §§ 5092, 5093; Act of 1841, § 10; Act of 1800, §§ 29, 30; As to filing accounts preparatory to final dividend. Act of 1867, § 27, R. S., § 5096; As to rights of creditors whose claims are allowed after first dividend, Act of 1867, § 28, R. S., § 5097; Act of 1841, § 10. In Eng.: Act of 1883, §§ 58-63; Act of 1914, §§ 62-68; General Rules 268-271. In Can.: Act of 1919, § 37. Cross-references: To the law: Referees to declare dividends and to prepare and deliver dividend sheets to trustees, § 39-a (1). Payment of dividends by trustees by check or draft, § 47-a (4); payment within ten days after declaration, § 47-a (9). Final meeting of creditors when estate is closed, § 55. Proof and allowance of claims, § 57. Notice to creditors of declaration and time of payment of dividends, § 58-a (5). Unclaimed dividends to be paid into court, § 66. To the General Orders: Payment of moneys deposited by check or warrant, signed by clerk, or trustee, and countersigned by judge or referee, XIX. To the Forms: Official Forms: (Vol. III, post.) List of claims and dividends to be recorded by referee and by him delivered to trustee, No. 40. Notice of dividend; creditor's letter to trustee, No. 41. Supplementary Forms: (Vol. III, post.) Order declaring first dividend and dividend sheet, No. 194. Order directing trustee to pay creditor dividend heretofore declared, No. 196. Notice of dividend and warrant, No. 195. Order passing trustees' accounts and declaring dividend, No. 198. Trustees combined dividend check and receipt, No. 199. SYNOPSIS OF SECTION. DECLARATION AND PAYMENT OF DIVIDENDS. I. Dividends Generally, 1488. a. Comparative legislation, 1488. b. Cross-references, 1488. c. Declaration of dividends, 1488. d. Effect of payment, 1488. II. First and Subsequent Dividends, 1489. a. Time and amount, 1489. b. Amendment of 1903, 1490. c. Creditors entitled only to what the bankruptcy law gives them, 1490. d. Garnishment of dividends in hands of trustee, 1491. e. Practice, 1493. f. Illustrative cases, 1493. III. Rights of Creditors Whose Claims are Allowed Subsequent to Payment of Dividends, 1493. a. In general, 1493. b. Final dividends, 1494. IV. Preference to Residents of the United States, 1495. I. DIVIDENDS GENERALLY - a. Comparative legislation. The English law is and our law of 1867 was far more elaborate in their provisions on this subject. The same is true of the Canadian act. Some useful suggestions will be found in them.1 The present section differs from those of the former law chiefly in being more elastic. Dividends may now be declared at irregular intervals. The amount on hand, not the time elapsed since the bankruptcy, is the real test; though this rule has been somewhat modified by the proviso clauses added by the amendatory act of 1903. b. Cross-references. Some of the subjects treated in this connection in the law of 1867 are found elsewhere in the present law. Thus, of the method of declaring dividends,2 and of paying of dividends; also of the notice to creditors of the declaration and payment of dividends. The meaning of "dividend" is also discussed in section. one of this work; the disposition of unclaimed dividends is fixed by § 66. 3 c. Declaration of dividends.- Subsection a provides for the declaration and payment of dividends on all allowed claims, except such as have priority or are secured. The meaning of this clause has been much discussed. It has been held a definition of "dividends. 1. See "Analogous Provisions,” ante. 5. See In re Sabine (Ref., N. Y.), 1 Am. B. R. 322. Definition.-A dividend in bankruptcy has been defined as a parcel of funds arising from the assets of the estate rightfully allotted to the creditor entitled to share in the fund, whether in the same proportion with the other creditors or in a different proportion. In re Barber (D. C., Minn.), 3 Am. B. R. 306, 97 Fed. 547. 6 8 It is rather the declaration, found in all bankruptcy laws, that each creditor of the same class shall receive his pro rata of the bankrupt's assets. The subsection was of considerable importance prior to the amendatory act of 1903; the cases, which are by no means uniform, are collected in the foot-note. The status of creditors entitled to priority and the order of payment has already been considered; so also of secured creditors. The former are never entitled to "dividends" in the restricted sense here employed; the latter only after they have realized on their securities or had their value otherwise determined.10 Both classes are "creditors" as defined in § 1 (9), and for the purpose of computing commissions under §§ 40 and 48, as amended. d. Effect of payment.- Payment of a dividend by a trustee in bankruptcy does not take the debt out of the statute of limitations." II. FIRST AND SUBSEQUENT DIVIDENDS 11 a. Time and amount. Subsection b provides for the time of declaring the first dividend, and the amount thereof, and regulates all subsequent dividends. The statute seems full and clear and is thought to be mandatory. The first dividend must be declared within thirty days after the adjudication, if a dividend of five per cent. can (after deducting sufficient to pay priorities) be paid on all claims whether allowed or not. In doing so, claims scheduled but not yet 6. In re Gerson (Ref., Pa.), 2 Am. B. R. 352; In re Barber (D. C., Minn.), 3 Am. B. R. 307, 97 Fed. 547. Oral promise by one creditor that claim of another should be paid. The fact that one creditor promised orally that the indebtedness of another creditor should be paid, there being no evidence of facts creating an estoppel on the part of the one creditor from receiving his dividends on an equality with the other creditor, does not entitle the other creditor to a preference. Moise v. Scheibel (C. C. A., 8th Cir.), 40 Am. B. R. 311, 245 Fed. 546. 7. In re Sabine (Ref., N. Y.), 1 Am. B. R. 322; In re Ft. Wayne Elec. Corp. (D. C., Ind.), 1 Am. B. R. 706, 94 Fed. 109; In re Coffin (Ref., Tex.), 2 Am. B. R. 344; In re Gerson (Ref., Pa.), 2 Am. B. R. 352; In re Fielding (D. C., Mo.), 3 Am. B. R. 135, 96 Fed. 800; In re Utt (C. C. A., 7th Cir.), 5 Am. B. R. 383, 105 Fed. 754, holding that sums to be paid upon secured claims or other claims entitled to priority are not "dividends" upon which the trustee or referee may receive a commission, disapproving In re Barber (D. C., Minn.), 3 Am. B. R. 306, 97 Fed. 547. 8. See discussion under section 64 of this work. 9. See discussion under section 57 of this work. 10. Compare In re Little (D. C., Ia.), 6 Am. B. R. 681, 110 Fed. 621. 11. American Woolen Co. v. Samuelsohn (N. Y. Ct. of App.), 43 Am. B. R. 530, 123 N. E. 154; In re Benzon, Bower v. Chetwynd (1914), 2 Ch. 68, 83 L. J. Ch. 658, 21 Mans. 8. allowed must be included.12 The second dividend must, subject to the proviso clauses of the amendatory act of 1903, be declared as soon as there is enough to pay 10 per cent. more; and so on until the funds of the estate are entirely distributed. This accords with the policy of the law in hastening distribution. This policy is further emphasized by the provision that the judge, but not the referee, may declare dividends oftener and in smaller proportions. In all other cases, the referee declares the dividend 13 and orders it paid. The assignee (trustee) formerly did this; in England and Canada, the trustee does yet. But dividends can be declared only at meetings of creditors. b. Amendment of 1903.-Since the amendatory act of 1903, the practice of declaring first and final dividend in small estates at one time is no longer possible.14 Since this amendment, if any dividends are declared, there must be two, the second at least three months after the first. The first proviso, added by the amendatory act, is a further limitation. Not more than 50 per cent. of the cash on hand, in excess of money to be reserved or paid on priority debts and that held out for claimants who have not yet proven, can be disbursed in a first dividend. The meaning is not exactly clear. The purpose, however, is patent enough: to give creditors a longer time to prove and additional notice of their right to dividends.15 The change is a mild reversal of the policy of the original law toward rapidity in administration. c. Creditors entitled only to what the bankruptcy law gives them. Subsection e is the corollary of subsection a. It prevents a creditor from collecting from the bankrupt estate any greater amount than accrues under the provisions of the bankruptcy law. General creditors are entitled each to his pro rata, but no more; secured creditors to their security and a pro rata of the balance, but no more. An apparent exception is that interest is sometimes paid on allowed claims; but this is only in case such claims have been paid in full, 12. In re Scott (D. C., Tex.), 2 Am. B. R. 324, 96 Fed. 607, holding that in declaring the first dividend the referee should withhold from distribution sufficient funds to cover all expenses of administration and priorities. He is required to hold back only sufficient funds to cover claims that will prob ably be allowed. This includes only those claims as to which he has in formation such as justifies him in the conclusion that they will be allowed when presented. 13. Bankr. Act, § 39-a (1). 14. See In re Smith (Ref., N. Y.), 2 Am. B. R. 648. 15. It perhaps minimizes certain evils, which grew out of a liberal construction of Bankr. Act, § 57-n. |