been dissolved by means of any nonuser or neglect to exercise any of the powers necessary for its preservation, a formal dissolution is not a condition precedent to the right to reincorporate. It is suffi cient if the corporation has become practically dissolved by a failure to elect trustees.& 81

§ 4850. Methods of reorganization-In general. What constitutes a reorganization,82 and the meaning of what is usually called reincorporation,83 have already been stated. And it has been noticed that reorganizations, using the term in a broad sense, assume many different forms, although what are sometimes called reorganizations cannot be classified as such within any proper meaning of the term. For instance, consolidations and mergers are sometimes referred to as reorganizations but in reality they are entirely different.84 There. is no reorganization where there is a combination of two or more existing corporations but only where one corporation is created to take the place of another. The forms of reorganization are numerous. But strictly speaking, a reorganization, while it may be brought about in various ways and under varying circumstances, is ordinarily accomplished either (1) in pursuance of an agreement of stockholders and creditors, without any foreclosure,85 or (2) by a voluntary transfer of the property of the corporation to a new corporation formed by stockholders or other persons financially interested in the old corporation, without any judicial or execution sale,86 or (3) in connection with a purchase of the property at a judicial or execution sale (generally a foreclosure sale) and the formation of a new corporation by the purchasers at such sale to take over the property and continue the business.87 Statutes seldom govern either of the first two classes of reorganization, but in many states there are elaborate provisions as to the reorganization of corporations in connection with a purchase at a foreclosure or other forced sale the third class referred to.88

§ 4851. Reincorporation and amendment of charter. Reincorporation, using the term as meaning simply the taking out of a new charter by an existing or defunct corporation, in order to correct errors or defects in the original corporation, or in order to enlarge

81 First Soc. of Irving M. E. Church

▼, Brownell, 5 Hun (N. Y.) 464.

82 See § 4834, supra.

83 See § 4839, supra.

84 See § 4836, supra.

85 See § 4852, infra.

86 See § 4863, infra.

87 See § 4856, infra.

88 Statutes, see § 4847, supra.

the powers or limit the liabilities of an existing corporation, or in order to lengthen or revive the corporate life, is so closely akin to reorganization, if not embraced within the term,89 that it is deemed proper to include the law relating thereto herein, at least to a limited extent.90 So a mere amendment of the charter is sometimes referred to as a reincorporation or reorganization, but it is such only in a very limited sense since the original corporation continues in existence without interruption and without change, except so far as a change is effected by the amendment; 91 and the law in relation to the amendment of charters has been stated in a preceding chapter,92 and will be noticed in this connection only incidentally.

§ 4852. Readjustment of securities. The reorganization may be on behalf of bondholders, or bondholders and other creditors, or bondholders and stockholders, or bondholders and stockholders and other creditors, by voluntary agreement, where the corporation is financially embarrassed, entirely independently of any judicial or execution sale of the corporate property. Thus, reorganization of a corporation which has issued bonds secured by a mortgage, and which has become embarrassed and unable to pay the interest, is sometimes effected by an agreement with the stockholders and bondholders, under which the stock and bonds, or bonds only, of the company are readjusted, so as to enable the company to continue business without a foreclosure of the mortgages on its property, the stockholders perhaps taking new stock, and the bondholders surrendering their bonds and taking new bonds differing from the old bonds as to amount, rate of interest, or priority, etc.93 In such a case, however,

89 See § 4839, supra.

90 Extension of corporate existence,

see §§ 408-415, supra.

91 See § 4838, supra. 92 Chap. 57, supra.

93 United States. Gilfillan v. Union Canal Co. of Pennsylvania, 109 U. S. 401, 27 L. Ed. 977; Mowry v. Farmers' Loan & Trust Co., 76 Fed. 38; Pollitz v. Farmers' Loan & Trust Co., 53 Fed. 210; Bill v. New Albany & S. Ry. Co., 2 Biss. 390, Fed. Cas. No. 1,407.

Kentucky. Ecker v. Kentucky Refining Co., 144 Ky. 264, 138 S. W. 264.

Missouri. State v. Barnett, 245 Mo. 99, 149 S. W. 311.

New Jersey. Park v. Grant Locomotive Works, 40 N. J. Eq. 114, 3 Atl. 162.

Pennsylvania. Union Canal Co. v. Gilfillin, 93 Pa. St. 95.

"Corporations, insolvent or financially embarrassed, often find it necessary to scale their debts and readjust stock issues, with an agreement to conduct the same business with the same property under a reorganization. This may be done in pursuance of a private contract between the bondholders and stockholders; and though the corporate property is thereby transferred to a new company, having the same shareholders, the transac

any bondholder or stockholder who refuses to join in the arrangement may insist upon his rights as such, and cannot be compelled to join in the reorganization or accept new stock or bonds in the reorganized company.

.94

§ 4853. Reorganization by voluntary transfer to new company. This kind of reorganization ordinarily is the act of all or a part of the stockholders who form a new corporation for the express purpose of taking over the property of the old corporation.95 The greatest difference between such a reorganization and a reorganization in connection with a judicial or execution sale is as to the liability of the new company for the debts and torts of the old company.96

§ 4854. Reorganization in connection with judicial or execution sale. This is the most common form of reorganization where a large corporation is in financial difficulties and cannot pay its debts. The most of the decisions of the courts relate to such reorganizations, and much of the law is peculiar to and only applicable to this class of reorganizations.97

§ 4855. Statutory procedure in Maine. In Maine, by statute, where the principal or interest of a corporate mortgage is not paid for three years after it is due, the bondholders may form a new corporation and take over the property just as if the mortgage had been legally foreclosed, provided a majority of the bondholders so elect.98 And a bondholder who has participated in the formation of a new corporation, based upon his bonds, cannot destroy the existence of the corporation, once legally formed, by a subsequent transfer of his bonds to third persons.99

§ 4856. Reorganization of English and Canadian corporations. Reorganizations under the statutes of England and Canada, where

tion would be binding between the parties." Northern Pac. R. Co. v. Boyd, 228 U. S. 482, 502, 57 L. Ed. 931.

The reorganization also may take the form of an agreement between the stockholders and bondholders whereby bonds are to be converted into preferred stock. See Lennig v. Choctaw, O. & G. R. Co., 15 Pa. Super. Ct. 510.

94 See § 4865, infra. 95 See § 4863, infra.

96 See §§ 4984-4997, infra.

97 See §§ 4857-4862, infra.

VII Priv. Corp.-73

98 Somerset Ry. v. Pierce, 88 Me. 86, 33 Atl. 772.

Where a new company has bought the equity of redemption, there is no occasion for a foreclosure of the mortgage, and the trustees in the mortgage, who have no beneficial interest, cannot maintain an action to dispossess the new company which has taken over and is operating the property. Pierce v. Ayer, 88 Me. 100, 33 Atl. 777.

99 Somerset Ry. v. Pierce, 88 Me. 86, 33 Atl. 772.

they are generally called "reconstruction," differ somewhat from the procedure in this country, in that they are accomplished by a decree of court approving a plan agreed upon by a specified part of the bondholders, and upon approval it is binding on all the stockholders and creditors. These statutory reorganizations of railroads in England and Canada take the place "of foreclosure sales in the United States, which in general accomplish substantially the same. result with more expense and greater delay; for it rarely happens in the United States that foreclosures of railway mortgages are anything else than the machinery by which arrangements between the creditors and other parties in interest are carried into effect, and a reorganization of the affairs of the corporation under a new name. brought about."2 Such reorganizations in England and Canada, pursuant to general or special statutes, although materially affecting the rights of nonconsenting minority bondholders, where confirmed by the home courts, are recognized as binding in this country so far as the rights of minority bondholders who are citizens of this country are concerned. It has been held, however, that a reorganization which is unfair and illegal, even though approved by a British court, is not binding upon an American stockholder, at least as to property not in England.a

§ 4857. Reorganization in connection with judicial or execution sale-In general. The most common form of reorganization, espe

1 For review of such statutes, as involved in decisions in this country, see Republican Mountain Silver Mines, Ltd. v. Brown, 58 Fed. 644, 24 L. R. A. 776, and Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774, construing English statutes.

In Canada, it seems that no general statute like that in England has been enacted, but the old English practice of passing a special act in each particular case, where a company is financially embarrassed, is preserved. Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 534, 27 L. Ed. 1020. "Our statute books are full of legislation of this kind." Jones v. Canada Cent. R. Co., 46 U. C. Q. B. 250.

A reorganization scheme under the

English joint stock company's arrangement act of 1870 will not be enforced against a New York stockholder personally in the courts of New York, where not a resident of England nor served with process in that country. Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774. Compare, however, Giesen v. London & N. W. American Mortg. Co., Ltd., 102 Fed. 584.

2 Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 539, 27 L. Ed. 1020. 3 Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 539, 27 L. Ed. 1020, holding also that it is immaterial that bonds made in Canada were payable in New York.

4 Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56

cially in case of large corporations such as railroads, is a reorganization in connection with an execution or judicial sale. Most of such reorganizations are in connection with a foreclosure sale, by the purchasers at such sale, although, at least for the most part, the same rules apply in case of a purchase of the corporate property at any other judicial sale or at an execution sale. Mortgages of all the property of large corporations, especially railroad mortgages, are generally so great in amount that on foreclosure thereof only the mortgagees, or their representatives, can be considered as probable purchasers, the result of which is that such foreclosures are generally in connection with or followed by a reorganization plan, all of which involves many questions of law not connected with foreclosure suits of the property of individuals or firms.5 In case of foreclosure, the reorganization takes place by procuring a sale under the mortgage or deed of trust, purchasing the property and franchises at the sale, and causing the same to be transferred to another corporation organized for the purpose by the stockholders or bondholders, or both, or by some of them. When a railroad company or other corporation, which has issued bonds and given a mortgage or deed of trust to secure the same, becomes embarrassed and unable to pay the interest or principal, it is often advisable for the bondholders, or a part of them, to formulate some scheme for reorganization of the corporation after a sale of the property under a decree foreclosing the mortgage or deed of trust, or under a power of sale given in the same. They may enter into an agreement for this purpose, appoint a committee or other agent to represent them, to purchase the property at the foreclosure sale for their benefit, to form a new corporation, and to transfer the property to it in return for stock or bonds, or both, to be issued to them by it in accordance with the agreement. Under this method, the ordinary procedure is for some of the large bondholders, or bondholders and others, where a forced sale is imminent, to get together, appoint a committee, and draw up at least a rough plan of reorganization. Sometimes this reorganization agreement is complete even as to details, and sometimes it is a rough plan with the idea of having the committee thereafter prepare and publish a detailed plan of reorganization. Generally, this preparation of a plan or agreement for reorganization, one party to which is usually a self

6

L. R. A. 139, 85 Am. St. Rep. 676, 61
N. E. 774.

5 See Louisville Trust Co. v. Louisville, N. A. & C. R. Co., 174 U. S. 674, 683, 43 L. Ed. 1130, which com

ments on this difference.

6 For forms of such agreements, see Fletcher's Corporation Forms, pp. 1804-1840, 1862-1874.