What happens to the stock of a company that's filed Chapter 11 or 13 bankruptcy?

Answer 1

If the company files chapter 11 the company has to pay their creditors, then the bond holders, preffered shareholders and finally the common shareholders hopefully get paid. The common stock as was the case for K-MART went from the NYSE to the pink sheets and finally became worthless. The stock you see trading now was new stock issued and trades on the NASDAQ. Basically all the loyal shareholders got screwed

From my many experiences with corp BK. - I would say they generally follow the scenario below:

In the priority of claims, stockholders have a very low one. Actually, the lowest. They would only get a share of what is left after all claims are paid. Obviously, when a Co is in bankruptcy, even Chap 11 - a reorg - they likely don't have the assets to pay all claims in full. Some creditors are asked to take less, or different - than what they fully have a right to.

Nowhere is this more obvious than with the bondholders (or priority debt holders). Since they are normally asked to do something like take a smaller percent of what the bonds promised promised to pay, they demand that to do so they be given all the stock in the Co....hence, for cancelling all (or some) of the debt, they get reimbursed by being given the Stock of the company. The stockholders really can't ask for their creditors to take less without they themselves losing what they have first...certainly the stockholders can't ask for others to sacrifice while they go along in the same ownwership position (only better as they don't have some liabilities to pay). A similar thing could happen with some other large, or class, of creditors, who are asked to compromise or take less.

Answer 2

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 not common, 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).

Answer 3

While chapter 11 can spare a company from declaring total bankruptcy, the company's bondholders and shareholders are usually in for a rough ride. When a company files for chapter 11 protection, its share value typically drops significantly as investors sell their positions. Furthermore, filing for bankruptcy protection means that the company is in such rough shape that it would probably be delisted from the major exchanges such as the Nasdaq or the New York Stock Exchange and relisted on the pink sheets or the Over-The-Counter Bulletin Board (OTCBB). When a company that is going through bankruptcy proceedings is listed on the pink sheets or OTCBB, the letter "Q" is added to the end of the company's ticker symbol to differentiate it from other companies. For example, if a company with the ticker symbol ABC was placed on the OTCBB due to chapter 11, its new ticker symbol would be ABCQ.

Answer 4

Normally, the stockholders will lose their position/ownership of stock (it becomes worthless) as a bondholder or other creditor would take the ownership for agreeing to not get paid all they are owed. Stock is not debt of a company, it is equity...if it can't pay it's debts, those owed can basically end up owning the Company.

Answer 5

First, C-13 is not used by Corporations (I don't think it is available to them). There is no absolute answer to your question...especially in C11 reorganizations, many things are known to happen. However, very commonly, the Stock of a company is essentially exchanged for the debt relief, in the restructure. Understand, the stockholders are not creditors...they aren't owed anything from the Company...they are the owners of it...they are afforded the personal protection by the Incorporation that they are not personally responsible for the debts of the company, but will get to share in it's earnings. They are only at rsik for the amount of their investment, no more. Hence, when the Corp (through BK), wants amounts it owes discharged and to escape other obligations, those not getting paid as agreed, even if agreeing to some restructure, frequently negotitate/demand that the stock in the company become theirs. This allows them to participate in a turnaround and perhaps sell their interest and recover their losses. The stockholders/company...who are wanting relief from having to pay back the amount they owed (say to bondholders or lenders), really don't have much of a position to argue that they shouldn't have to giove up all they own in the company to those they aren't paying back what is owed.

Answer 6

Generally all their value is lost, they stop being traded and the equity in business component they represent, an insolvent business - debts more than equity - is exchanged to some debtor(s) - frequently bond holders or major lenders, for those parties accepting less than they are owed.

Answer 7

Those in retirement accounts are protected from use, but oterwise a stock, like any item of value (that you invested your cash in it doesn't change wha it is), can and would be used to pay your creditors...just like any other savings.

Answer 8

Normally, the stockholders will lose their position/ownership of stock to a bondholder or other creditor for their not receiving all that is owed.