Page:Harvard Law Review Volume 32.djvu/543

From Wikisource
Jump to navigation Jump to search
This page needs to be proofread.
507
HARVARD LAW REVIEW
507

UPSET PRICES IN CORPORATE REORGANIZATION 507 IV In what is perhaps the most vexed and unsatisfactory phase corporate reorganization — the participation of stockholders of the insolvent corporation in the reorganization — the theory of majority control seems to offer the only solution. The most pressing problem confronting a reorganization committee is, usually, that of new funds to meet current expenses, and to pro- vide for necessary improvements and replacements. The con- ventional way of raising new money, as approved by the Supreme Court of the United States,^^ is to make the old bondholders stock- holders in the new corporation and to issue new first mortgage bonds. Often, such a plan cannot be forced upon the old bond- holders, or will not produce enough money. The source of hope, then, is usually the old stockholders. Stockholders generally show a startling sporting propensity, and are willing to stand an assess- ment, and advance new funds, rather than lose forever what slender hopes they may have. Yet, the Supreme Court of the United States has placed such indistinct limitations upon the par- ticipation of stockholders in a reorganization that it is diflScult to tell from the authorities what may or may not be done. In the Monon case ^^ the Supreme Court of the United States first considered the "novel and important" ^^ question of the participation of a stockholder in a reorganization. Here a general creditor sought to set aside a decree of foreclosure and sale on the ground that the bondholders and stockholders of the railroad had consummated a scheme wherein they colluded to defeat all general creditors by foreclosing the mortgage of the bondholders; in other words, the scheme of reorganization, under the foreclosure, pro- vided no place at all for the unsecured creditors, but did allow the stockholders to participate. The court held that the property was a trust fund for the benefit of all creditors, and that a scheme whereby one class of creditors was allowed nothing, and the stock- holders still retained an interest in the property, could not be tolerated. " Shaw V. Railroad Co., 100 U. S. 605, 612 (1879). See also Ginty v. Ocean Shore R. R. Co., 172 Cal. 31, 155 Pac. 77, 79 (1916).

    • Louisville Trust Co. v. Louisville, etc. Ry. Co., 174 U. S. 674, 681 (1899).
    • See opinion Justice Brewer in the Monon case, supra.