From this fact it may safely be assumed that the allocation so worked out provided each class of bondholders with an interest in the new company substantially in proportion to the amount of the equity which was to be surrendered therefor, and that no equities were recognized that did not in fact exist. Montgomery Building Realty Co., 7 T.C. 417, 426 (1946); Alcazar Hotel, Inc., 1 T.C. 872, 877 (1943). We hold, therefore, that the $435,000 equity interest which was determined by the District Court to be in the second bondholders represented the interest which they in fact exchanged for the preferred stock, in a like amount, of the new company.

Petitioner urges that the exchanges in controversy here took place incident to a genuine adversary proceeding wherein the creditors and stockholders of Delaware are to be deemed to have been transferors; that as such they each received stock and securities substantially in proportion to their respective interests in the property prior to the exchange; and that they were in control of the petitioner immediately after the transfer. To support its contentions, petitioner cites and relies upon such cases as Gage Bros. & Co., 13 T.C. 472; Alexander E. Duncan, 9 T.C. 468; Montgomery Building Realty Co., 7 T.C. 417; Taylor-Wharton Iron & Steel Co., 5 T.C. 768; Miller & Paine, 42 B.T.A. 586, and others of like import wherein the exchanges involved were held by us to be tax free. Respondent maintains that the pertinent evidence of probative value shows Delaware to be insolvent at the time the 77B proceedings were instituted; that, therefore, the equitable interest of the stockholders effectively passed to the creditors upon the institution of such proceedings; and that, since the creditors did not receive all of petitioner's stock, they did not receive stock or securities substantially in proportion to their respective interests prior to the exchange.

And the fact that the transfers here were the result of arm's length dealings between conflicting interests is, on this record, adequate to satisfy us that within the meaning of section 112(b)(5) of the securities received by each were substantially in proportion to his interest in the property prior to the exchange. Taylor-Wharton Iron & Steel Co., 5 T.C. 768; Montgomery Building Realty Co., 7 T.C. 417, 426; Alexander E. Duncan, supra. There is a suggestion that the transaction does not qualify because Old Gage, rather than its stockholders and creditors, was the transferor.

But reorganization means that the transferor corporation, or some one representing the ownership of its property, stockholders or creditors, retains a ‘substantial stake‘ in the new corporation. Helvering v. Minnesota Tea Co., 296 U.S. 378; LeTulle v. Scofield, 308 U.S. 415. Such a fact is noticeably absent here, for the two creditors, Sine and Curtin, who participated in the ownership of the majority stock of the new corporation, held only a small fraction of the debts against the old corporation, even if, as in Montgomery Building Realty Co., 7 T.C. 417, we consider only the unsecured creditors. We do not think it can truly be said that the mere emerging in the new corporation of the holders of such a small amount of debts indicates the continuity of the old corporation requisite for ‘reorganization.