8. The valuation having been based on earnings, the segregation of the system earnings to each existing lien and the allocation of new securities representing the system value to each class of claimants, was in full accord with the principle that senior creditors are to retain their relative priority of position in a reorganization. P. 517. 9. Junior claims can receive nothing until senior claims receive securities of a value equal to their indebtedness. P. 517.

10. When the Commission made its allocations of securities, it did not find that the cash value of those awarded senior claimants equalled the face value of their claims; and it definitely had in mind that one thing that gave them compensation for the admission of junior claimants to participation in securities before the seniors. obtained full cash payment was their chance to share in the unlimited dividends that might be earned and paid on the common stock in the "lush years," thus taking into account the abnormal earnings during the war. P. 518.

11. The improved physical condition of the road through expenditures of the trustees for previously deferred maintenance, improvements and new equipment necessarily entered into the Commission's valuation of the property. P. 518.

12. That the creditors who received common stock to make them whole obtained with it an interest in all cash on hand or that might be accumulated was an important factor in the allocation of the new securities. Pp. 518, 519.

13. The senior creditors having accepted the plan as fair and equitable as between themselves, if the method and result of valuation are sound, the allocation of 10% of their claim in common stock to the junior creditors follows as a matter of computation. P. 519.

14. The objection of a stockholder to a voting trust for future control of the debtor is ineffective, because the stockholder was eliminated from the reorganization by the valuation of the property and allocation of securities. P. 520.

15. The Commission's action in fixing the effective date of the plan as January 1, 1943, was within its power. P. 521.

16. Assuming that the courts may set aside a plan which was fair and equitable when adopted by the Commission merely on account of subsequent changes in economic conditions, they should not do so when the changes are of the kind that were envisaged and considered by the Commission in its deliberations upon, or explanations of, the plan. Pp. 521, 522.

17. It would be erroneous to assume that the senior bondholders were paid in full by the securities allotted to them without also

accepting the Commission's determination that the assets represented as of the effective date and all subsequent earnings were a part also of the common stock that was awarded to them; since the opportunity to participate in war earnings and in the accumulations of cash beyond operating fund needs was part of their compensation for their loss of position. Pp. 522–524.

18. When common stock is issued in partial satisfaction of the claims of senior creditors and a reduction of senior capital takes place after the adoption of the plan by the use of anticipated earnings or existing cash, there can be no corresponding readjustment of junior participation; because assets in the balance sheet at the adoption of the plan and subsequent earnings are for the benefit of stockholders in the new company, the senior claimants, so that they may be compensated through these common stock advantages for their loss of payment in full in cash. Pp. 524, 525.

19. The settled rule in bankruptcy proceedings that a creditor secured by the property of others need not deduct the value of that collateral or its proceeds in proving his debt is applicable in proceedings under § 77. P. 529.

20. A provision in a plan of reorganization that the trustee under a certain bond issue secured in part by a lien on stock owned by a third party shall be permitted to obtain the release of the equities in the stock and distribute it among the bondholders or to enforce its rights as pledgee of the stock and distribute the proceeds to the bondholders did not change or affect existing rights in the stock; and those rights remained subject to judicial determination. Therefore, it could not result in the holders of the bonds secured thereby receiving more than they were entitled to nor deprive the holders of a junior lien on the stock of any of their rights, even though the Commission made no definite finding as to the value of the stock and the holders of the senior lien on the stock may have been fully compensated by other provisions of the plan. Pp. 525–531.

21. The provisions of § 77 (e) for confirmation of a plan of reorganization over the creditors' objection, if the reviewing court finds that it makes "adequate provision for fair and equitable treatment" of those rejecting it, that their rejection is not "reasonably justified" and that the plan complies with the requirements of the section, are within the bankruptcy powers of Congress. P. 533.

22. The finding of the District Court that the plan made "adequate provision for fair and equitable treatment" of the dissenters, as of its effective date, was justified. P. 533.

23. In view of the District Court's familiarity with the reorganization, this finding has especial weight with this Court. P. 533.

24. The rejection of the plan by the holders of general mortgage bonds was not "reasonably justified" within the meaning of § 77 (e). Pp. 533-535.

25. It is the duty of the Commission to plan reorganizations with an eye to the public interest as well as the private welfare of creditors and stockholders. P. 535.

26. The public interest in an efficient transportation system justifies the Commission's requirements for reasonable maintenance and improvements of the properties and for a capitalization with fair prospects for dividends on all classes of securities. P. 536. 150 F.2d 28, reversed.

The Interstate Commerce Commission approved a plan of reorganization of a railroad under § 77 of the Bankruptcy Act. 254 I. C. C. 349. The District Court approved it. C. C. H. Bankruptcy Law Service ¶ 54,562. All creditors entitled to vote accepted the plan except holders of the general mortgage bonds. The District Court held that the latter's rejection of the plan was not "reasonably justified" and confirmed the plan. 62 F. Supp. 384. The Circuit Court of Appeals reversed the District Court and remanded the reorganization proceedings to the Commission for further consideration. 150 F. 2d 28. This Court granted certiorari. 326 U. S. 699. The judgment of the Circuit Court of Appeals is reversed; the orders of the District Court approving and confirming the plan are affirmed; and the cause is remanded to the District Court for further proceedings. P. 536.

George D. Gibson argued the cause for petitioners. With him on the brief were Solicitor General McGrath, W. Meade Fletcher, Jr., Alexander M. Lewis, John W. Davis, Edwin S. S. Sunderland, James L. Homire, Thomas O'G. FitzGibbon, Judson C. McLester, Jr., Henry W. Anderson, W. A. W. Stewart and Arthur A. Gammell.

George L. Shearer entered an appearance for the United States Trust Company of New York, and John W. Drye, Jr. entered an appearance for the Central Hanover Bank & Trust Company, petitioners.

Frank C. Nicodemus, Jr. argued the cause for the Denver & Rio Grande Western Railroad Company, respondent. With him on the brief was William V. Hodges.

Edward E. Watts, Jr. argued the cause for the City Bank Farmers Trust Company, respondent. With him on the brief were Peter H. Holme and Milton J. Keegan.

H. H. Larimore filed a brief and submitted for Thompson, Trustee, respondent.

MR. JUSTICE REED delivered the opinion of the Court.

The petitioners in these five cases are the owners of claims against the debtor, Denver & Rio Grande Western Railroad Company, or against a secondary debtor, the Denver & Salt Lake Western Railroad Company. The respondents are the two debtors just named; City Bank Farmers Trust Company, Trustee under the General Mortgage of the principal debtor; and the Trustee of the Missouri Pacific Railroad Company, a large owner of common stock of the principal debtor.

The debtors sought reorganization in the District Court of the United States for the District of Colorado under § 77 of the Bankruptcy Act,' on November 1, 1935. The Interstate Commerce Commission approved the plan of reorganization under consideration in this review on June 14, 1943. The District Court approved the plan October

111 U. S. C. § 205.

2 The plan is printed in Denver & R. G. W. R. Co. Reorganization, 254 I. C. C. 349, 385. See for former decisions of the Commission in this reorganization, 233 I. C. C. 515; 239 I. C. C. 583; 254 I. C. C. 5.

495

Opinion of the Court.

25, 1943. It was then submitted by the Commission to the creditors of the classes deemed entitled to vote for acceptance or rejection of the plan and a certificate of the result filed in the District Court on July 15, 1944. All classes of voting creditors approved the plan as required by § 77 except the holders of the Denver's General Mortgage bonds. On November 1, the District Court held the rejection of the plan by the holders of the General Mortgage was not reasonably justified and thereafter confirmed the plan on November 29, 1944. § 77 (e).

5

The plan provided for a reorganization as of January 1, 1943, by the Denver by adjustment of its liabilities to its assets with or without a consolidation with the Salt Lake and the Salt Lake Western to form a system. The stock of the latter road is held by the Denver. There are no bonds. As no ruling that we are asked or required to make turns upon whether the reorganization is with or without the suggested consolidation, we need not give further consideration to possible differences. In either case, creditors with secured claims against the reorganized roads or against their property were left undisturbed or allocated new securities of the new company, consisting of first mortgage and income bonds, preferred and common stock, in lots, in face amount of the secured claims except for the General Mortgage issue, that the Commission and District Court determined, through adoption of the plan, were fair and equitable in the light of the respective priorities, liens and collateral of the various secured

3 C. C. H. Bankruptcy Law Service ¶ 54,562.

4 The Denver & Rio Grande Western Railroad Company is referred to herein as the debtor or the Denver; The Denver & Salt Lake Western Railroad Company as Salt Lake Western; The Denver & Salt Lake Railway Company as the Salt Lake; The Rio Grande Junction Railway Company as the Junction.

5 In re Denver & R. G. W. R. Co., 62 F. Supp. 384.