The New Hope and Ivyland Railroad Company, hereinafter referred to as NH&I or the debtor, on June 5, 1970, filed a petition with the District Court of the United States for the Eastern District of Pennsylvania stating that it was unable to pay its debts as they matured and that it desired to effect a plan of reorganization under section 77 of the Bankruptcy Act, 11 U.S.C. 205. The petition was approved on the same day.

The debtor, on February 17, 1971, as amended on May 30, 1972, filed a plan of reorganization, which was dismissed for lack of prosecution. Another plan for reorganization of the debtor was filed on February 29, 1972, by Robert L. Starer. Also, pursuant to a court directive, an application to abandon the entire line of railroad was filed by the trustee on December 8, 1971, and, as a concomitant to the abandonment application, an application was filed on the same day by Starer to acquire and operate the railroad upon its abandonment, as an alternative to his plan of reorganization.

HISTORY AND DESCRIPTION OF PROPERTIES

The debtor was formed in 1965, for the purpose of acquiring and operating the line in interstate or foreign commerce following its purchase from the Reading Railroad. The line is located entirely within Bucks County, Pa., and extends from New Hope to Ivyland Borough, a distance of 16.7 miles. NH&I is not affiliated with any other carrier subject to our jurisdiction. It provides freight service between Ivyland and New Hope, and operates a tourist service between New Hope and Buckingham Junction, a distance of about 7.1 miles, using steam locomotives, in the summers. Commuter service is not regularly provided.

The debtor has operated at a loss in each year of its existence. To its financial position it sold the underlying fee of its entire improve rights-of-way to the Philadelphia Electric Company for $199,500. The purchase agreement provided for a 99-year lease back to the NH&I at a yearly net rental of $6,000, payable in advance quarterly. NH&I retained the title to 20 parcels of trackside property as well as all ties, tracks, ballast, bridges, and other improvements. Two independent appraisals of debtor's realty were separately prepared. The appraisal conducted for debtor's trustee values the property between approximately $233,000 and $240,000. The value assigned by Starer's appraiser is $110,000 lower. The disparity was not reconciled on the record.

Since the commencement of operations, NH&I has had no more than two paid employees, relying instead upon unpaid volunteers to operate and maintain the road.

FINANCIAL STRUCTURE

The debtor's balance sheet, as of June 5, 1970, the date of entry into reorganization, shows total assets of $451,234, consisting of investment in properties, less depreciation, $428,911; total current assets, $7,952; and total other assets, $14,371. The liabilities on the same date totaled $307,185, consisting of current liabilities, $304,788 and long-term liabilities, $2,396. Net stockholder equity was $144,050. By March 31, 1972, debtor's balance sheet deteriorated somewhat with total assets dropping to $395,307 comprised of current assets, $9,361; investment in properties, less depreciation, $370,580; and other assets, $15,365. Liabilities on March 31, 1972, totaled $366,683 with current and long-term liabilities increasing to $363,193 and $3,490, respectively. The net stockholders' equity showed a marked decrease to $28,623.

CLAIMS

Pursuant to section 77(c)(7) of the Bankruptcy Act, the court ordered 10 classes of claims as follows:

1. Administration expenses;

2. Taxes due the United States prior to June 5, 1970;

3. Real estate taxes;

4. Corporate taxes due prior to June 5, 1970;

5. Prior claims under the 6-month rule;

6. Secured creditors;

7. Unsecured creditors;

8. Preferred common stockholders;

9. Common stockholders;

10. Remaining assets.

The only secured creditor is the Southeastern Pennsylvania Development Fund (Fund) to whom the debtors owes approximately $177,000, plus interest, which, as of the date of bankruptcy, totaled $20,205.

PROPOSED PLAN OF REORGANIZATION

The plan filed by the debtor, as stated above, was dismissed for want of prosecution and need not be discussed herein.

The Starer plan, as originally framed, provided for the disposition of all the debtor's properties and would pay the Fund and all creditors ranked higher than the Fund in full, without interest. The unsecured creditors would receive noninterest bearing notes, maturing 15 years after the effective date of reorganization, in the principal amount of their claims. The two classes of stockholders would receive one escrow fund share for each share of preferred or common stock held. Hence, the plan includes provisions altering the rights of creditors. No creditor offered any testimony at the hearing.

The costs and expenses of administration and other allowances ordered by the court would be paid by the trustee from available assets or, if there are no assets, by the new company, as directed by the court. All executory contracts would be rejected, including the lease with Philadelphia Electric.

The Starer plan would transfer all tangible assets of the debtor to a newly created, wholly owned subsidiary company, the New Hope and Ivyland Corporation, hereinafter referred to as the Corporation. All of the Corporation stock would be transferred to Starer or his nominee. To secure adequate payment to the Fund, the Corporation would pledge all of its tangible assets. The reorganized debtor's charter would provide for 200,000 shares of $1 par value common stock and each share would have one vote. Starer or his nominee would purchase sufficient shares of the new stock to pay in cash the costs of administration. A cash payment of $10,000 would be made to provide the reorganized debtor with working capital.

A new lease with Philadelphia Electric would be executed providing for full relief from all rental payments during the first 15 years after consummation of the plan, and then for a rental to be negotiated by the parties. The debtor would also execute a leasepurchase agreement with the present New Hope and Ivyland Equipment Corporation for rental of its diesel locomotive for $135 per month based upon a price of $15,000, plus 6-percent interest per annum on the unpaid balance.

The debtor would also enter into a lease agreement with the corporation for rental of all the necessary railroad operating equipment and land at $35,000 per annum or the debtor's operating profit, whichever is the lesser amount, for the first 2 years. Rental for the next 18 years would be $35,000 per annum. The cost of maintenance of the equipment is not included in the rental. Starer pledges to operate the reorganized company for at least 10 years if