If a proper proportion of the bondholders of a corporation, usually one-half, are not satisfied with the reorganization as outlined by the committee, or the amount or kind of new securities to be given them for their assessment under the proposed plan, they may compel the trustees to begin foreclosure proceedings, and when the property is sold, bid it in and take the property in payment of their debt. The usual method in such an event would be for the bondholders participating in this movement to form a new corporation provided with the necessary working capital so as to be ready to make repairs and put the property in good condition, and also to pay off the non-participating bondholders who would be entitled to their pro rata share of the price realized at the sale. This would leave out the stockholders entirely. The new company could then issue its own bonds free from all obligations of the former corporation.

William W. Cook says: "The object of a reorganization is to avoid foreclosure. The prospect of a foreclosure is the cause of a reorganization. Frequently the reorganization is made after a foreclosure has been commenced, the object of the foreclosure being to cut off those persons who refuse to come into the reorganization. Sometimes the reorganization practically does away with the necessity of foreclosure, and this is the ideal condition towards which the times are tending."

Frequently newly organized railroad companies and large corporations issue bonds upon their property and franchises, ostensibly for the purpose of raising funds for extending and improving their existing property. These bonds, not being paid, at maturity, a foreclosure of the bond issue results. The property is sold under foreclosure sale and a reorganization is had, usually by a new class of investors, the property and franchises transferred to the new organization, and the original stockholders get nothing for their investment. This is a plan much favored by unscrupulous manipulators and organizers who by such manipulation acquire for themselves and their associates the amount originally paid in by the unsuspecting subscribing stockholders. Railroad and mining corporations especially have been the means of filching the public in general of enormous sums by this means.