In the Matter of Taylor's Mobile Homes Sales, Inc., Bankrupt. Benjamin D. Frantz v. Warren Taylor and Opal Hampton

In February 1972, the bankrupt established a qualified profit sharing plan (see I.R.C. § 401), and later that year made its one and only contribution of approximately $18,754. In 1973 the bankrupt began to experience financial difficulty, and by August of that year could no longer meet its payroll. All employees had been terminated by the end of August. On September 9, 1973, the bankrupt made an assignment for the benefit of creditors. On September 26, 1973, an involuntary petition in bankruptcy was filed.

The bankruptcy court ordered the trustees of the profit sharing plan to turn over 80% of the assets to the trustee in bankruptcy. The district court reversed. The trustee in bankruptcy appeals.

The profit sharing plan provided that upon termination of employment, each participant was entitled to a stipulated “Severance Benefit percentage” (in this case 20%) of the value of the participant’s profit sharing account. (R. at 20.) On termination of the plan or trust, on the other hand, each participant was entitled to the full value of his account. (R. at 30.) The trustee contends the plan terminated when the employer made the assignment for the benefit of creditors and, since the…