Page:Harvard Law Review Volume 32.djvu/529

493 UPSET PRICES IN CORPORATE REORGANIZATION 493 termining, preferably by the decree of the Chancellor, that the plan is not fraudulent or unduly oppressive as to minority in- terests. In America, although such procedure would not be a violation of the due process clause of the Federal Constitution, as to the rights of the minority, since it can be viewed as a form of bankruptcy or insolvency procedure, nevertheless, the contract rights of the minority would be impaired. The Supreme Court of the United States has so viewed the English procedure: "Unless, as is the case in the States of the United States, the passage of laws impairing the obligation of contracts is forbidden, we see no good reason why such provision may not be made in respect to existing as well as prospective obligations. The nature of securities of this class is such that the right of legislative supervision for the good of all, unless restrained by some constitutional prohibition, seems almost necessarily to form one of their ingredients, and when insolvency is threatened, and the interests of the public as well as creditors, are imperilled by the financial embarrassments of the corporation, a reasonable 'scheme or arrangement' may, in our opinion, as well be legalized as an ordinary 'composition in bankruptcy.' " " Because of this constitutional difficulty, reorganizations in America require a foreclosure sale under the mortgage or trust deed securing the bonds. Thus the procedure adopted unfortu- nately is that of the winding up of a business, or a complete change of ownership — a flat contradiction of the real purpose of a re- organization, which is simply an "arrangement" whereby a new financial structure can be estabHshed.^^ Such a foreclosure sale, in short, is a device rather than a fact. A new purchaser with sufficient means to buy the property outright and pay off the bond- holders practically never appears; the old security holders must be the purchasers under the foreclosure sale.^^ Consent decrees are entered by the court if all the bondholders reach an agreement; and, as will be pointed out later, the courts, recognizing such con- sent decrees of sale to be merely devices to facilitate reorganiza- tion, rather than the adjudication of rights, do not hesitate to set aside such decrees, often with startling results. For convenience, outstanding bonds may be paid to the master under the foreclosure " Canada Southern Ry. Co. v. Gebhard, 109 U. S. 527, 535 (1883). 7 ed., § 889, pp. 3496, 3498. " Investment Registry Limited v. Chicago & M. E. R. Co., 212 Fed. 594, 609 (1913).
 * Canada Southern Ry. Co. v. Gebhard, supra. See 4 Cook on Corporations,