CORPORATIONS-VALIDITY OF OPTION TO CONVERT PREFERRED STOCK INTO MORTGAGE BONDS

Authors

Abstract

A corporation issued preferred stock, with a fixed dividend rate, power to elect a director voting as a class, and an option in the holder to convert, at his election, into mortgage bonds which were issued at the same time. After a substantial indebtedness had been incurred by the corporation, the stockholders exercised their option to convert into bonds. The corporation then went into bankruptcy, and in reorganization proceedings, the bondholders claim a preference over general creditors. Held, that the former holders of the preferred stock were stockholders and not creditors of the corporation and that, in the absence of a statute, an agreement giving stockholders a preference over general creditors is contrary to public policy and void. In re Phoenix Hotel Co., (D. C. Ky. 1935) 13 F. Supp. 229.

Recommended Citation

CORPORATIONS-VALIDITY OF OPTION TO CONVERT PREFERRED STOCK INTO MORTGAGE BONDS, 34 Mich. L. Rev. 1041 (1936).
Available at: https://repository.law.umich.edu/mlr/vol34/iss7/15