United States v. Butterworth-Judson Corp.
Headline: Court rules that an insolvent company’s consent to receivership counts as a voluntary assignment, giving the United States priority on its debt and reversing lower courts’ denials.
Holding: The Court decided that an insolvent corporation’s consent to receivership and surrender of its property counts as a voluntary assignment under §3466, so the United States has priority for its claim.
- Makes government debts take priority when a company voluntarily enters receivership.
- Encourages courts to treat receivership assets as a trust fund for creditors.
- Reverses lower-court denials and requires priority-based distributions.
Summary
Background
A New York corporation owed roughly $3,000,000 with assets under $1,500,000 and was insolvent. A small creditor, a foundry, sued to protect the business and asked the court to appoint receivers so the property could be preserved and fairly distributed. The company admitted the complaint and consented to receivership on April 22, 1922. The receivers were given exclusive control, authority to run the business, preserve property, and pay debts entitled to priority.
Reasoning
The key question was whether section 3466 applied so the United States could claim priority for a $1,154,450 debt. The Government filed for priority after proving its claim, and lower courts denied that relief. The Supreme Court held that by admitting the complaint and handing possession and control to the court and receivers, the company effectively made a voluntary assignment of its property for the benefit of creditors. The Court relied on equity principles that treat assets in an insolvent company’s receivership as a trust fund for creditors and concluded the statute gives the United States priority.
Real world impact
The decision means that when an insolvent company voluntarily turns control of its assets over to a court and receivers, those assets are treated as a trust fund for paying creditors and government claims can take priority. The ruling reverses the lower-court decisions and requires distribution according to statutory priorities.
Ask about this case
Ask questions about the entire case, including all opinions (majority, concurrences, dissents).
What was the Court's main decision and reasoning?
How did the dissenting opinions differ from the majority?
What are the practical implications of this ruling?