CORPORATIONS - MODIFICATION PROVISIONS OF CORPORATE MORTGAGES AND TRUST INDENTURES

As early as the late 1800's it was not uncommon to find included in corporate mortgages and trust indentures provisions looking to the modification of the rights of the bondholders by action of a given majority of such holders. Ordinarily the power conferred could not be exercised by the holders of less than seventy-five per cent in value of the outstanding bonds; the modification authorized might be the alteration of security rights, the deferment of payments of interest or principal, the reduction of interest, or even the reduction of the debt. Inasmuch as the same equitable doctrines limit their use, these four powers may be considered as of one generic type, and for our purposes discussed together as comprising the "modification provisions" of modern trust indentures. These provisions enjoyed little popularity with the draftsmen until the 1920's when, perhaps because of their possible use to obviate the need for, or serve in the place of, reorganizations under receivers, the modification clauses of one type or another became customary in most corporate mortgages.

But in spite of wider use, even today the extent to which they may be of aid in establishing a plan of reorganization either with or without judicial proceedings cannot be defined with precision because of the paucity and complexity of litigation directly turning on the force of the provisions.