## Facts

- Atlas Pipeline Corporation operated an inland oil refinery (about 8,000 barrels/day) and a pipeline system serving oil fields in East Texas, South Arkansas, and Louisiana.
- The business lacked its own crude production and had no established sales outlets, making it dependent on third-party suppliers and purchasers.
- The company entered court control in May 1939 through receivership; a trustee later continued operations in the reorganization proceeding.
- The court judicially declared the debtor insolvent and excluded common stockholders from any participation under a plan, limiting distributions to creditors.
- The principal assets were encumbered by first and second mortgages; the estate also had several thousand dollars of unencumbered “free assets” potentially available to unsecured creditors in liquidation.
- A court-appointed engineering appraisal placed the assets’ going-concern value at approximately $2.5 million.
- The trustee proposed a plan creating a new corporation to acquire and operate the business as a going concern, subject to existing mortgage liens.
- The plan contemplated: (i) modified new bonds for first mortgage bondholders (reduced interest and changed terms), (ii) preferred stock or similar equity-type interests for second mortgage bondholders, and (iii) about a 10% recovery for unsecured creditors payable in cash or free assets.
- A crude-supply/management group from the oil industry would provide supply stability, assume operational control, and commit additional funds for improvements.
- All creditor constituencies supported the plan; the Securities and Exchange Commission opposed it in a report finding it not fair and not feasible.

## Issues

1. Whether the proposed plan was “feasible,” meaning the reorganized enterprise had a reasonable probability of meeting obligations under the contemplated capital structure.
2. Whether the plan was “fair and equitable” to creditor classes in light of lien priorities, the debtor’s insolvency, and the plan’s allocation of value.
3. What weight the court should give the SEC’s adverse report in deciding whether to grant tentative approval and submit the plan to creditors.

## Decision

- The court granted tentative approval of the trustee’s plan and authorized submission to creditors.
- The court found the plan feasible, crediting improved performance under court supervision and deeming the trustee’s projections reasonable and conservative.
- The court found the plan fair and equitable, emphasizing the debtor’s insolvency, the exclusion of equity, and the differentiated treatment of creditor classes consistent with priority.
- The court held the SEC’s report deserved serious consideration but was advisory and did not control the court’s independent judgment.

## Legal Principles

- In corporate reorganization, the SEC’s statutory report is advisory; the court must consider it but retains final authority to determine statutory compliance.
- Feasibility requires a reasonable assurance that projected earnings can support the reorganized entity’s fixed charges and obligations without a likely return to insolvency.
- A plan must be fair and equitable, applying absolute priority: when the debtor is insolvent, equity holders are excluded unless creditors are paid in full.
- Distributions among creditor classes must respect lien and claim priorities and may be evaluated against the liquidation alternative for junior and unsecured recoveries.

## Conclusion

The court tentatively approved a creditor-supported reorganization plan despite the SEC’s opposition, concluding that conservative earnings expectations, improved operations, respect for lien priorities, and exclusion of equity holders established both feasibility and fairness under the Bankruptcy Act.


In re Atlas Pipeline Corp., 39 F. Supp. 846 (W.D. La. 1941)