Corporate Bankruptcy – What an Investor Should know

If a company is struggling to pay its creditors and needs to restructure or downsize its operations, it may file for bankruptcy protection.  You, as an investor who invested in a publicly traded company needs to know what happens if the company goes bankrupt.  Today, our experts at Shipkevich PLLC provide essential investor bankruptcy information. 

Corporate  bankruptcy is governed by federal law just as any other bankruptcy.  A corporate has two bankruptcy options depending on the prospects of its financial status and whether it has a chance of restructuring and remaining open or liquidating and shutting down.  

Chapter 11 Bankruptcy: Filing a Chapter 11 bankruptcy means restructuring and reorganizing the business in order for the business to offload some of its debt and become profitable.  

Chapter 7 Bankruptcy: During a Chapter 7 bankruptcy filing the corporation stops operations, shuts down and the assets are liquidated to pay creditors as well as investors.

Low risk investors and creditors with secured collateral are usually the ones who get paid first.  Bondholders usually recover their losses better than stockholders because bondholders are guaranteed a return on their investments while stockholders own a part of the company.

Investor Bankruptcy Information for Company Stocks and Bonds during Bankruptcy

Usually companies that have filed a Chapter 11 bankruptcy will continue trading on the stock exchange.  However, after failing to meet listing standards it may be delisted from the NASDAQ or New York Stock Exchange. The stocks may continue trading on Pink Sheets or Over The Counter Bulletin Boards (OTCBB).  Company stock values usually take a big hit when the company files for bankruptcy.  Existing shares of common stock in a company filing for bankruptcy are usually canceled and dividends are not paid to stockholders during bankruptcy proceedings.  Usually, common shares are diluted during bankruptcy, the best case scenario being if the old shares are exchanged for new ones in the restructured and reorganized company.  However, these new shares may be fewer and of less value.  Stockholders, in certain cases, may get nothing in return after bankruptcy.

After bankruptcy, a company may have two types of common stocks.  These are old stock before bankruptcy and new stock after bankruptcy,  Usually traded on the Pink Sheets or Over The Counter Bulletin Boards (OTCBB) the old stocks have a ticker symbol ending in ‘Q’.  The new stocks  will be marked with the symbol ‘V’ if the stocks are not issued but rather authorized by the company.  When the company issues the stock,  the ‘V’ will be removed.  It is imperative to understand the difference between old and new stocks when making investment decisions.  

People who hold bonds in the company that has filed bankruptcy, will not receive anything during  the process of the bankruptcy proceedings.  However, they may be able to exchange the old bonds for new ones  or new stock or a combination of both.

If you are looking to my more investor bankruptcy information, speak to one of your debt relief professionals.