open mortgage under which bonds can be issued and sold when additional cash capital is required.

Fixed Charges.-If the reorganization is to prove successful the total fixed charges, which usually consist of guarantees, rentals, and interest, must be less than the net earnings of the corporation. In case the old corporation is dissolved by reason of the reorganization (which is the fact in most instances) it is, of course, released from all contracts, and the new corporation may or may not renew them.

If guarantees of interest and dividends on subsidiary company securities are unprofitable, the opportunity is now presented to dispense with them. The holders of such guaranteed stocks or bonds will often submit to a reduction of the guarantee under such circumstances.

The above is also true with respect to rentals. The owners of a leased property would ordinarily have difficulty in leasing it to another corporation-this is especially true when the leased property has been built for the failed corporation, and the owners have, therefore, practically no choice in the matter but to submit to a reduction.

The most important factor, however, is the scaling of interest-bearing securities by the substitution of dividendpaying securities of the new corporation for interest-bearing securities of the old. Sometimes interest-bearing securities of the new corporation are exchanged for the old on a scaled basis, and in some instances the new securities bear a lower rate of interest than the old securities.

It is considered equitable in cases where bondholders have accepted a reduction of their interest-bearing princi pal to give them at least enough dividend-payment principal to bring the par value of the holdings in the reorganized company up to the par value of their old securities, thereby giving the holders a chance to share in the future prosperity of the company.

The liquidation of the floating debt is a matter that need not be discussed at length, as settlement would nat

urally be made with creditors for cash or securities, on the most advantageous terms. In some instances, however, their claims have been wiped out under foreclosure proceedings.

Voting Trusts.-Following the reorganization of a corporation there is a tendency on the part of security holders, particularly the smaller ones, to dispose of their holdings at a low price, and the aggregate of the securities thus sold might be considerable. In this manner they might fall into the hands of competitors or others antagonistic to the interests of the new corporation. In order to safeguard such a condition and to insure stability of management, financial and otherwise, it is advisable to place all of the new stock in the hands of voting trustees under a voting trust agreement for a period of years, or until such time as the new company is operating on a sound basis.

The stock is usually held by the voting trustees jointly under a voting trust agreement which prescribes their powers and duties, and until the delivery of the capital stock is made, these trustees issue voting trust certificates or certificates of beneficial interest in such stock.