The decree of foreclosure which the court has made provides all the conditions govern ing the sale. Just as for any bidding, it pro vides that a substantial cash deposit shall be made with the bid to assure the good faith of the bidder. If the bidder commits any fraud in connection with the proceedings, the sale may be subsequently upset. After the sale has been made, it must go back to the court for its confirmation.
Assume that the court names as an upset price a sum less than the amount of the mort gage under which the foreclosure proceedings have taken place. Of course, it is the regular situation that the sum is smaller than the face of the mortgage. In the case of a railroad, the mortgage foreclosed is so generally a blanket mortgage covering the entire assets of the corporation that the deficiency judgment for the difference between the sale price and the face of the mortgage would have no value. The foreclosure of a mortgage on an industrial enterprise would not so invariably involve all the assets of the corporation. Since, how ever, the business and assets must be sold as those of a going concern, the decree would provide for the sale of all the property, and in the event that not all were under the mort gage the deficiency judgment might have some value.
One element of uncertainty in reorganiza tion becomes increasingly important. Public service commissions more and more have jurisdiction over capitalization. "Where they have jurisdiction their approval must be ob tained for the capitalization proposed for the reorganization of a public service enterprise.
Delay caused by the necessity for satisfying a public service commission may result in the failure of the attempt to reorganize.
Let us assume that the reorganization com mittee has taken every step successfully, and that the new securities, either in the form of interim receipts or definitive certificates, are ready for distribution. The depository certificates which so far have represented the depositors' interests in the reorganization were transferable, and the committee has no means of knowing who now are entitled to the new securities. Therefore the committee will publish notice that the new securities are ready for distribution.
It is likely to be one of the provisions of the reorganization agreement that the stock of the new corporation shall be placed in a voting trust. The reorganization syndicate wants the voting trust in order to insure con tinuity of management, and to avoid embar rassments that would result from the hostility to the management of a voting minority. As a result of the consideration they have given the enterprise on account of the default in its obligations, those who are interested in the reorganization have probably formed a definite idea about what policies will be most advantageous to the business. These policies are likely to involve a large construe tive work of business organization which will take the management several years at least to carry out. To meet the requirements of the Stock Exchange Listing Committee and of state law, the trust agreement is ordinarily made for a period not exceeding five years. The wording of a reorganization plan estab lishing a voting trust follows: — The preferred and common stock of the new company issued in the reorganization will be as signed (but in the event hereinafter stated, sub ject to the prior pledge thereof) to the following voting trustees: Frederic W. Allen, James W. Lusk, Charles H. Sabin, James Speyer, Frederick Strauss, Eugene V. R. Thayer, and Festus J. Wade, and be held by them, jointly, and their successors (under a trust agreement prescribing their powers and duties and the method of filling vacancies), for five years. The voting trustees will issue certificates of beneficial interest en titling the registered holders thereof to receive, at the time and on the terms and conditions stated in the voting trust agreement, stock cer tificates for shares of the number and class specified in such certificates, and in the mean while to receive payments equal to the dividends received by the voting trustees upon shares of the number and class therein specified. In the event of the death or failure or refusal to serve of any person designated as a voting trustee, prior to the creation of the voting trust, the vacancy shall be filled by the reorganization managers.