Evening star., 1934-06-06
NEW LAW TO A|D
DEBT SETTLEMENT
Bill Now Before President
Puts Ban on nuisance"
Creditor.
BY DAVID LAWRENCE.

The nuisance" creditor, whose tao
tics sometimes border on extortion, is
at last to be put in his place by the
laws of the United States.
For years a minority interest in a
corporation trying to readjuSt its cap
ital structure would by dilatory legal
tactics or by threats of further nti-
cation, make it difficult for the ma
iority to bring about the reorganlZa-
ton of a corporation that was either
in receivership or needed to be over
hauled as to claims and securities out
standing.
But it has always been difficult to
find some effective way Of preventing
the minority from holding up reor-
ganization plans. This has been partly
due to the fact that the State courts
have. for the most part, handled the
affairs of corporations in process OF
reorganization.
Placed Under Courts.
Now. however, President Roosevelt
has before him for signature a bill
passed by an overwhelming vote in
Congress which virtually puts all cor
porationS that may desire to reorgan-
ize hereafter under the jurisdiction OF
the Federal courts. The legislation
will have more to do with the read
justment of debt growing out OF the
depression than any other single piece
of law that has been passed.
President Hoover asked for the law
in a special message to Congress, but
the bill, though passing the House
twice. was never worked out in the
Senate, because of difficulties over the
reorganization of debt-ridden munlcl-
palities, which has since been made
into a separate bill.
Heretofore receiverships have been
found rather expensive, because they
could be forced upon companies by
creditors in almost any State where
the debtors property was to be
found. Under the new law the Fed
cral court takes charge of all prop
erty of the company coming within
its protection, no matter in what
State the property is located. This
will do away with what is known as
an ancillary receivership.
Recognizes Will of Majority.
But the most important thing
which the new law does is to recog-
nize the will of the majority. When
two-thirds of the note holders OF a
company, or tWo-thirds of the stock
holders, or tWo-thirds of any class
of claimants, agree upon a plan of
reorganization, the minority III each
class cannot block approval.
The interests Of the minority have
to be equitably handled in any plan
that merits the courts approval, but
the court can, if it likes, limit the
amount that a claimant can recover
to the amount of the consideration
involved Thus, if, as happens very
often, the elements which make
practice Of picking up securities of
corporations that have defaulted
should attempt to block a reorgani
zation plan, the court may order
them compensated only fo- the
amount they themselves paid Sup
posing, for instance, that the minor
ity creditor bought his bonds at a
market price of $40 when the orig
inal value was S100, the court may
decide to permit the company 70 pay
him off at $40, and no more. His
claim, in other words, would not be
recognized for the full sum.
The new legislation makes the Fed
eral judges virtually as powerful in
reorganizations as they have been
under receiverships or bankruptcy
proceedings. They may agree 20 the
revision of an indenture or any other
agreement If it is in the interest
of two-thirds majority Of the cred
itors involved.
Must Present Plan.
Any corporation can file a petition
and place itself under the juriSdic-
ton. for the time being, of a Federal
Court. But such a corporation must,
within reasonable time, produce a
plan that indicates a possibility of re-
organization. Otherwise, the court
may entertain the plea of three
creditors and adjudge the corpora
ton a bankrupt.
The interesting and significant
thing about the new law is its conSti-
tutional aspect. Naturally, dissent
ing minority could not be dealt with
if its claim were not to be given what
was proposed by the majority. Yet,
under bankruptcy proceeding
minorities have always been compelled
to take what the court ordered dis
tributed as their rightful share
Just how to prevent liquidation,
which meant the destruction of good
will and companys going concern
value. and yet keep it from being
classified as bankrupt has been the
difficulty from the beginning. Thomas
-
District Court judge in New York and
solicitor general under the Hoover
administration. developed the legal
theory on which the new law is based.
1t is that business which frankly
tells a court it cannot meet debts as
they mature Is virtually in the same