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Railroad Leases and Reorganization: II, 49 Yale Law Journal 1401 (1940)


One of the most important questions raised in a study of the role of the railroad lease in reorganization is the manner in which the lessee's trustees, in view of their rejection of the lease, will account for operation of the leased line. As pointed out in Part I of this article, the leased line will be actually operated by the lessee's trustees both before and after rejection of the lease. Such operation means that expenses will be incurred in running trains, in maintenance, in making necessary capital improvements and in many other ways. Certain revenues will also result from this operation. Accounting for operation can be defined as ascertaining in dollars and cents whether the operation as a whole is at a profit or loss. The existence of either a profit or a loss has a twofold consequence for the lessor. It will play a part in determining the final treatment of the lessor in the lessee's plan of reorganization. Moreover, and of importance here, it may have significant consequences during the reorganization proceeding itself.

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