any party to the cause is authorized to apply for further order and direction. The term of the court at which the decree is entered is sometimes extended until after the complete execution of the provisions of the decree.1

After the expiration of the time given to the railroad company to pay the amount adjudged due, the trustee files an affidavit of non-payment.

The notice of sale is then published. The description of all real estate owned by the company other than the rights of way should be as full as possible. The important provisions of the decree should also be stated in the notice; and it should wind up with a particular reference to the decree for all further details.

After the sale the master makes a report to the court. Where the sale has been made under the decrees of several courts and the same master has been appointed under all the decrees as he always is, his report to the different courts recites his appointment under these different decrees. The report should show strict compliance with all the conditions of the decree and of the general law necessary to the making of a valid sale; and should state that the purchaser was the highest bidder; that he signed a memorandum of the sale, has complied with all the preliminary terms and conditions, and is entitled to a conveyance upon full payment as provided by the decree of sale.

At the time of this report, the purchaser enters his appearance, and files his petition for confirmation of the sale. He refers to the report of the master, and if he is a representative of the reorganization committee, as he usually is, he says he is prepared to deliver to the master, in order to have credited thereon as part of the purchase price the dividend

1 Guaranty Trust Company of New York v. Metropolitan Street Railway, 177 Fed. 925; 1910.

applicable thereto, bonds, or receivers' certificates, or whatever it has been provided by the decree may be accepted, and he offers in all respects to comply with the terms of his purchase, subject to all the provisions in the decree of sale. He prays for leave to intervene and to be made a party to the suit, and that the report made by the master be approved and confirmed. The trustee moves also for the confirmation of the report. Ordinarily the report of the master, the petition of the purchaser to intervene and the motion to confirm, are all made at the same time, the various parties to the suit waiving their right to file exceptions, and consenting that the petition and the motion may come on for hearing at once. On the same day, the decree of confirmation is made. This decree should recite in detail that all the things have been done or have happened, which, by the decree of foreclosure, were precedent to the right of the master to make the sale, and that all things have been done subsequent to the sale to entitle the purchaser to a decree of confirmation.

THE REORGANIZATION OF CORPORATIONS; BONDHOLDERS' AND STOCKHOLDERS' PROTECTIVE COMMITTEES; REORGANIZATION COMMITTEES; AND THE VOLUNTARY RECAPITALIZATION OF CORPORATIONS

A Lecture Delivered before the Association of the Bar of the City of New York, by Paul D. Cravath, March 1 and 8, 1916.

THE late Adrian H. Joline—and no lawyer of his day had a more varied contact with corporate reorganizations — said in one of his Harvard lectures delivered in 1910, that after an experience running over a period of thirty years, he found it about as difficult to tell how to reorganize a corporation as it would be for a poet to tell how to write poetry. One cannot formulate many rules or refer to many precedents which will serve as a guide to the reorganizer, for each reorganization differs more or less from all others. I can therefore do little more than offer a series of practical suggestions based upon experience. This should be the most helpful method of approaching our subject, because in few branches of practice does experience count for more and there are none in which the books furnish so little help.

I shall deal chiefly with the legal, rather than the economic and financial aspects of reorganizations, although in a great measure the legal and business questions are very closely intertwined. Usually it is not the duty of a lawyer to give advice to his client on economic questions. If you tell him what he may lawfully do, you may usually leave it to him to decide what he may wisely do. But in reorganizations, particularly if your clients are inexperienced in reorganization practice, it is often the duty of counsel to advise them both as to the practical and legal aspects of the questions presented for decision.

A plan of reorganization, however lawful, will bring disappointment and discredit to its authors if its terms are not such as to command the support of security holders. It is quite as important to propose a plan which will be supported by the security holders as one which will be supported by the courts. In both aspects it is important that the plan should be fair and just, for even after it has been accepted by a majority of the security holders, the courts are very apt to find a way of upsetting it, if it presents elements of unfairness or oppression.

You will get some idea of the practical importance of this branch of professional activity when I tell you that during the past twenty-five years railroad corporations owning about onehalf of the total mileage of the United States have been subjected to the process of reorganization or readjustment and that over eighty railroad corporations, owning about forty-two thousand miles of railroad or about sixteen per cent of the total mileage of the country, with an aggregate capitalization of about two million and a quarter dollars, are now in receivers' hands and awaiting reorganization. In addition, a surprisingly large proportion of the great industrial enterprises of the country, including several which are now enjoying sensational prosperity, have passed through some form of reorganization. United States District Judge Hough of this District 1 recently estimated that fifty per cent of the corporations of to-day have gone through some form of reorganization in the last twenty years.

Definitions

The term "reorganization," as applied to corporations, may somewhat loosely be defined as the rearrangement of the financial structure of an incorporated enterprise, rendered necessary by insolvency or by the inability of the corporation to secure the necessary funds for its operations because of obstacles resulting from its financial structure. Corporate reorganiza

1 Southern District of N. Y.

tions usually, though not always, follow, and are based upon, the foreclosure of mortgages or the enforcement of the rights of creditors in some form.

Reorganizations of corporations which are insolvent or suffering from a defective financial structure are sometimes accomplished by the voluntary action of the security holders. It is to such operations that the term "readjustment" is usually applied, although in some measure the terms "reorganization" and "readjustment" are used interchangeably. A recent illustration of the common use of the terms is furnished by the Plan for the Readjustment of the Capital and Debt of The Missouri Pacific Railway Company, which was first offered for the voluntary acceptance of the security holders in the hope that their acceptance of the Plan would render the foreclosure of mortgages unnecessary. It was then spoken of as a "Plan of Readjustment." It was not accepted by the security holders with sufficient promptness to avert a default in the interest payments under various mortgages, upon which the trustees thereupon instituted foreclosure proceedings. The same Plan, although not changed, automatically came to be called a "Plan of Reorganization" instead of a "Plan of Readjustment."

There are cases where, without the spur of insolvency or financial necessity of any kind, corporations are, to use a common expression, "recapitalized," that is, their corporate or financial structure is changed for some reason other than to meet financial stress, as, for instance, to increase or decrease the amount of stock outstanding, to replace bonds by stock or vice versa.

Our subject therefore naturally divides itself into three divisions:

First: Reorganizations based on the foreclosure of mortgages or the enforcement of other rights of creditors and involving the organization of a new corporation to acquire the property which is the subject of the reorganization;