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.
