US SUPREME COURT DECISIONS

1. Where the property of a railroad corporation, to be sold under foreclosure, is so great as to render cooperation between bondholders and stockholders essential in order to secure a bidder and prevent undue sacrifice of their interests, they may enter into a fair and open reorganization arrangement to that end. P. 271 U. S. 453.

2. But such arrangements are invalid if they recognize and preserve the interests of stockholders at the expense of the prior rights of the secured or unsecured creditors of the corporation. Nor. Pac. Ry. v. Boyd, 228 U. S. 482. Id.

3. A plan of reorganization, to bind the unsecured creditor, must "give precedence to" -- i.e., recognize the superior importance of -- the creditor's claim over any interest of the stockholder in the old company. P. 271 U. S. 455.

4. Subject to the qualifications that the primary right of unsecured creditors to the assets of the insolvent corporation, remaining after lienholders are satisfied, must be adequately protected, and that to each one of them must be given such opportunity as the circumstances permit to secure the full enjoyment of this preference, a plan of reorganization which offers them securities of the same grade as those offered the stockholders, but greater in amount, will be fair, and bind the unsecured creditors if, in the opinion of the court, it tenders to such creditors all that could be reasonably expected under all the existing circumstances. P 271 U. S. 455.

5. Where the same grade of securities is offered both to unsecured creditors and to stockholders, the difference being that the stockholders are called upon to pay an assessment, or a relatively greater assessment than that asked of creditors, it may nevertheless chanrobles.com-red

Page 271 U. S. 446

be fair and binding if the court is of the opinion that it tenders them all that could reasonably be expected under all the existing circumstances; but the prior rights of creditors, as above pointed out, must be recognized, and assessments, whenever demanded, must be adjusted to the purpose of according to the creditor his full right of priority against the corporate assets as far as possible in the existing circumstances. P. 271 U. S. 456.

Response to questions certified by the circuit court of appeals on an appeal from a decree of the district court in a railway foreclosure suit. See 294 F. 32. chanrobles.com-red

Page 271 U. S. 450