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The statute of Kentucky “to provide for the reorganization of railroad and bridge companies,” is, unless I am mistaken, the first attempt to deal with a subject of great public importance by legislation.

This act in substance provides that when a corporation belonging to the classes named is insolvent and in the hands of a court under proceedings to enforce any mortgage or for the payment of debts, “ the holders of a majority of any class of securities issued by such company, or any class of creditors,'' may prepare and submit to the court a plan of reorganization, which shall provide first for the payment of taxes and of all debts for labor, materials and supplies entitled to a lien, next for the payment or assumption of debts secured by a lien prior to that of the creditors proposing the plan, and last, for the issue of new securities and their distribution among security holders of the class to which the

proposers belong and those holding subordinate claims, in such a manner as shall regard their relative rights.

When such a plan is proposed, the court is directed to give notice, the creditors are allowed to file objections, and upon a


Being an extract from the address sociation, at the last annual meeting of Moorfield Storey, of Massachusetts, of that body at Saratoga Springs, President of the American Bar As New York. VOL. XXX.


hearing the court may approve, amend, or reject the plan. If it is finally approved by the court and receives the assent of persons holding three-fourths of the claims belonging to the class proposing it, and a like proportion of the classes holding subordinate claims, the court is directed to declare the plan adopted, and provide for its execution.

If no such plan is proposed, the court may order a sale, and if security-holders buy, they may pay in part by surrendering their securities as the court may order. In that case all holders of securities belonging to the same class as the purchasers are given the same rights as the purchasers; and the latter, before adopting any article of incorporation or transferring the property to any corporation, are required to present a plan of reorganiza. tion with substantially the provisions as already stated, and to secure its approval by the court.

This legislation is well worthy of careful consideration as a step in the right direction, for it enables the court to protect the interests of investors by making every reorganization the subject of judicial investigation and securing for every interest a hearing. That its importance may be understood, let me for a moment call your attention to the existing practice, of which the country has had a bitter experience within the last few years.

The great railroad systems of this country have been built up and equipped with borrowed capital. Their bonds as a rule were issued for money, and to those who held them, early in 1893, represented an investment of often more than their face value. The shares of these railroads, on the other hand, had frequently been issued without payment. Sometimes they were given as a bonus to persons who subscribed for the bonds. Very often the parent company organized subordinate corporations for the purpose of building branches; borrowed the money to build and equip them by issuing the bonds of these corporations, and kept the stock without paying for it, in order to control the branches thus built. In this way the money of creditors was invested, and the control of the property was retained by the debtors. In order to protect these creditors, the most skillful lawyers in the country have been engaged to draw mortgage deeds and other contracts with careful and explicit provisions,

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