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What happens to shareholders if the company is filing a chapter 11 bankruptcy?
Wiki User
∙ 12y ago
Lets start: Stockholders are owners of the company. They are NOT creditors. The company owes them nothing. They in fact, would personally owe the debts of the company, except the amount they are limited to (by business law) is the amount of their investment in the corporation. That's the advantage of owning stock in a Corporation and not owning as say a partner, or proprietor....YOUR liability for debts of the business is limited.
The corporation you own stock in has more debts than assets...it is Bankrupt...another term for worthless - (that isn't to say that some things it owns aren't valuable, but the debts/obligations are higher...and if you sold the things of value, there would be nothing left produce income). Hence the stock is worth nothing really. It was a bad investment.
In exchange for some of the debt they won't be getting paid by the company, some Creditors may want/or accept the stock in the current or "new" company...hoping with their backing and support, they can make something that will recover their loss.
A number of things can happen:
If the company closes, the stock would normally just become worthless and that's it. Useless paper. The stockholders can take the loss as a deduction (within certain limits).
If the BK is more of a reorganization...and some debtors agree...they may actually take the exisiting, (or newly issued stock) in the corporation as payment for their claims. It is possible, although very uncommon, when this happens that the exisiting stock remains to have some value, cetainly much, much less than before, for those original stockholders.
Generally, the company closes and the assets are sold to satisfy the debts as best they can, or the entire company is essentially purchased by the creditors in exchange for the debts they are owed - again the old stockholders have no liability but have no stock of value.
(It wouldn't be right to have a creditor accept less than all they are owed, while a stockholder maintains anything of value (which stock is) in that same company. Whatever that value represented by that stock...it should be used to pay the debt of the company first).
Wiki User
∙ 12y ago
Wiki User
∙ 15y agoAll shareholders, all stock in fact, is almost always reduced to zero and worthless. Stock represents equity in a company. A Co in BK has no equity, in fact it has NEGATIVE equity...if the ownership wasn't stock in a corporation, but say partner shares, not only would what you own be worth nothing, but what the business owes could become your own personal liability to pay! You don't expect the Co to not pay people it owes, and expect that the company owners get to keep anything, like their stock, of value in the company. If I'm a creditor, and you want me to take less than I'm owed...I might, but if you have stock, I'll take that too for the difference.
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What happens to your shares after bankruptcy of Bombay Company Inc?
In the case of a bankruptcy of Bombay Company Inc., the company's assets would be liquidated to repay its creditors. Any remaining funds would be distributed among the shareholders based on their proportionate ownership. However, it is important to note that the value of the shares may become significantly diminished or even worthless, as the company's financial obligations are prioritized over the interests of shareholders in a bankruptcy proceeding.
What happens if you wreck your car after filing for Chapter 13 bankruptcy?
If you wreck your car after filing for Chapter 13 bankruptcy you can file it on your insurance. You can then replace your car based on the bankruptcy order.
What happens if you have a workmens comp claim and the company files Chapter 7 bankruptcy?
Your claim is most likely covered by a WC insurance, either a prvate policy the employer had or one with the State. As such, your claim should be unaffected by the Bankruptcy.
If you file chapter 7 bankruptcy what happens with your state pension plan?
Uneffected.
What are the difference between Chapter 7 vs Chapter 11?
The difference between Chapter 7 bankruptcy and Chapter 11 bankruptcy is what happens to a party during the process. Parties undergoing chapter 7 bankruptcy must sell of their assets in an attempt to pay off dept. Chapter 11 allows for one to attempt to maintain their assets. During chapter 11 bankruptcy the party must negotiate with creditors to stay afloat.
The Two Major Corporate Bankruptcy Filings?
Just like people, sometimes a corporation accrues more debt than it actually has the ability to pay back. When this occurs, a corporation sometimes declares bankruptcy. However, corporations do not always use the same kinds of bankruptcy that individuals use. The two most common corporate bankruptcy filings are Chapter 7 bankruptcy and Chapter 11 bankruptcy. Chapter 7, which can also be used by individuals, is for businesses that are giving up entirely. If a company declares Chapter 7 bankruptcy, that company will cease operations immediately. At that point, legal ownership of the company is transferred to the bankruptcy court. When ownership of the company is transferred to the court, a lawyer will be appointed by the court to oversee the rest of the bankruptcy. This will include overseeing the closing of that corporation's facilities. It will also include a liquidation of the company's assets. The assets will be sold, and the proceeds of those sales will be used to pay back creditors that are owed money by the company. Chapter 11 bankruptcy, not used by individuals, is a bit different. Instead of the business being closed, the business is allowed operate normally during the bankruptcy. The goal of a Chapter 11 bankruptcy is the restructuring of the corporation so it can be profitable once again. There is also another potential benefit from this kind of corporate bankruptcy. All or a good portion of the company's previous debts and other obligations may be absolved. This is due to the fact that the goal of Chapter 11 bankruptcy is reorganization. Debt or other obligations that would force a company to go out of business may be removed to help that occur. Obligations other than debt that may be set aside by the court can vary. Usually this includes things such as agreements with unions on employee pensions and benefits, leases for real estate and other expensive contracts. However, even if a corporation attempts to enter Chapter 11 bankruptcy, there is still a risk that the company may be liquidated as part of a Chapter 7 bankruptcy. This can occur if a plan is not agreed upon by the corporation, its creditors and the court. If this happens, the only remaining options are either entering Chapter 7 or returning back to the company's pre-bankruptcy state. Since the company entered bankruptcy because survival without reorganization was unlikely, both choices are rather undesirable.
You are currently in a chap 13 bankruptcy can I change to a chap 7 bankruptcy?
You cannot change my bankruptcy, but you can convert your Chapter 13 to a Chapter 7. It happens frequently. You may want to check with your lawyer or an experienced lawyer since it can have unintended consequences.
When a company files bankruptcy what happens to the union contracts?
They can be changed by the Court.
What happens to someone in a personal bankruptcy?
It depends on whether or not you qualify for Chapter 7 or Chapter 13. For Chapter 13, you will slowly have to pay your creditors back over time. For Chapter 7, you have to assign a value to everything that you own. The creditors will then determine whether or not these items will be included in the bankruptcy in a hearing.
What happens to your wage garnishment when the company files bankruptcy?
your wages still garnished
What happens when a business is owed money by a company that files for bankruptcy?
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What happens if you are in bankruptcy and then become unemployed?
If you are in a chapter 13, if you are no longer able to make plan payments, you must either convert to a chapter 7 or dismiss the 13.
