The first step in a reorganization after some person or group of persons - receiver, banking house, reorganization committee, or some one else - has been permitted to take charge of the process is to bring about a thorough examination and analysis of the accounts. It may be extremely unsafe to accept without question the accounting statements issued by the old management, for it is quite likely that their natural effort for several years has been to conceal the company's growing financial weakness. Until the actual earnings and expenses are definitely determined, no plan of reorganization that will hold water can be worked out. The examination may be both expensive and lengthy. While it is in progress, those actively engaged in the reorganization may carry on negotiations and work out a tentative plan, but no final result can be accomplished.

The second step consists of carrying on or completing the negotiations. Inasmuch as most of the members of the security holders and reorganization committee who must be consulted are likely to be men of affairs devoting only a relatively small amount of time and thought to the reorganization scheme, these negotiations are troublesome and are likely to cover a long period of time before any definite conclusions are reached.

In the meantime, as a third step, the receiver will be conducting the company with all possible economy. Perhaps, as set forth in the preceding chapter, he will be raising new capital, reforming the internal organization, and otherwise raising the enterprise to a higher plane of efficiency. If the company possesses non-essential or non-profit-making property, the receiver may proceed, with the consent of the court, to dispose of some of its property. This, again, may be a long-drawn-out process.

The final step, when the reorganization plan has been worked out and accepted both by the security holders and by the court, is to select and put into execution the best legal method of accomplishing the financial rearrangement that has been agreed upon. In case the unanimous, or almost unanimous consent of the security holders has been obtained, the court may declare the plan operative and binding even upon the small proportion that have not given their assent. It is more frequently necessary, however, to go through the legal form of organizing a new corporation - usually with a name very similar to that of the insolvent corporation - and to bring about a judicial sale of all the property of the old corporation to the new corporation. The reorganization committee in that case will turn in the obligations of the old corporation in payment for the property, and will issue in exchange obligations and shares of the new corporation under the terms that have been agreed upon.

Sometimes stubborn security holders of the old corporation who are opposed to the reorganization plan refuse to exchange their securities for those of the new corporation. The result may not be especially pleasing to them, for they are likely to be left holding securities of a company which is non-active and for all practical purposes may be called non-existent. When the reorganization of the Northern Pacific Railroad Company took place in 1896, the holders of some 25,000 shares refused to exchange them for shares in the Northern Pacific Railway Company (the new company). Because of their opposition the old company is still kept alive but is, of course, inactive.