The decision was so manifestly correct that we should hardly have written an opinion were it not to make it plain that referees should not order consolidation on so flimsy a basis as was done here. While the term has a disarmingly innocent sound, consolidation in bankruptcy, in the form directed in this case, is no mere instrument of procedural convenience, such as consolidation of actions under F.R.Civ.P. 42(a), but a measure vitally affecting substantive rights. The Supreme Court has told us time and again that 'courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity,' Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 697, 78 L.Ed. 1230 (1934). The inequity of consolidation could scarcely be clearer than in this case. The debentures had been issued when Meadors was an independent company, more than six years before its acquisition by Flora Mir. Yet we have stated that even when the interrelationship already existed at the time credit was extended, 'The power to consolidate should be used sparingly because of the possibility of unfair treatment of creditors of a corporate debtor who have dealt solely with that debtor without knowledge of its interrelationship with others,' Chemical Bank New York Trust Co. v. Kheel, 369 F.2d 845, 847 (1966). Here there was a near certainty of unfair treatment. Consolidation not only would wipe out Meadors' claim against Flora Mir for the misappropriation of its assets but also would permit the creditors of Flora Mir and the other corporations to share in any recovery in the South Carolina action against Keebler and Atlantic Services for transactions antedating Meadors' joining the Flora Mir group-- transactions in which these creditors had not the slightest legitimate interest. We doubt that any showing of accounting difficulties would warrant consolidation under such circumstances, at least if the Meadors creditors were willing to confine themselves to assets that were obviously theirs. But here there was no evidence, such as in the Chemical Bank case cited, that 'the interrelationships of the group are hopelessly obscured and the time and expense necessary even to attempt to unscramble them so substantial as to threaten the realization of any net assets for all the creditors, * * *' 369 F.2d at 847. To the contrary, the accountants in relatively short order had managed to come up with financial statements of each of the debtors.4 Whatever problems there might be with respect to intercompany accounts among other debtors, those with respect to Meadors were few, for the reasons stated.
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