The Financial Policy of Corporations Volume 5 (Paperback)

This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1920 Excerpt: ...of railroad accounting and the standards of operating efficiency adopted by the courts. priority as those issued to pay the debts of the receivership.27 When this liberality of issue is carried to an extreme, courts of equity may so burden a railroad with receivers' certificates that the value of the mortgage bondholders' lien is absolutely obliterated. This is exactly what has happened in several recent instances in which the bondholders have had nothing of real value left when the time came to discharge the receiver.22 It is this power of the courts of equity, supported by a series of Supreme Court decisions,25 that jeopardizes both the spirit and the letter of railroad mortgages. The possible exercise of this power by the federal courts weakens every public utility bond. It has been called the "extreme limit of the most extraordinary powers of a court of chancery."25 Quite so, and one might call it an unjustifiable emasculation of the substance of presumably inviolable contracts. During the period of receivership, the court under which the receiver administers his trust provides the funds required for improvements and operation, either through the deflection of current income or through the issue of receivers' certificates. The real problem arises, however, when the time comes to put into effect some plan of reorganization. No longer is it possible to borrow on the authority of the court through the issue of receivers' certificates. So that any comprehensive plan of reorganization involves the raising of a considerable sum of money. New money is ordinarily required at the time of reorganization for five separate purposes: (1) The accumulated floating debt must be paid off or else be adjusted. If an adjustment is made with the creditors, it is a...