I own some stock in a company that has filed for Chapter 11. Since I’ve never owned a company that’s gone Chapter 11 before, I have a couple of questions.
Is the common stock worthless? I make the assumption that it is, but it holds a value (ok… it’s pennies, but still it’s a value). Does the Chapter 11 restructuring have to complete before common shareholders are officially told that they are S.O.L.?
Assuming that I’m S.O.L., what is my next step? Does the company notify me that I’m no longer a shareholder? Does my brokerage send a note to the IRS telling them I have a loss? (after all, they are so quick to notify them of any gains).
Given that I have a loss, how much can I deduct from my taxes next year? And do I get to deduct my paper loss or just my dollar invested loss? (I’m sure it’s dollar invested. Just thought I’d ask).
I guess I could ask my broker, but since the bastard told me to hold onto it because he was sure it was going to be taken over, I’m a bit unhappy with him.
First of all, I’m not an authority. Your broker (bastard though he may be) probably is. That being said…
The company can continue to do business in Chapter 11. They may or may not be closing. Some other company could certainly take them over.
If they close, you will take a loss. You may also get a small payout.
If they get taken over, your stock will be assigned some new value in stock in the new company.
If the company makes a product that no one wants anymore, they’re more likely to close. If they have a product or knowledge that would be attractive to a prospective buyer at a bargain price, they are a good takeover candidate.
At this point, you should probably sit it out, since your shares aren’t likely to bring in much. What company is this, by the way?
I really have no choice at this point. I’ll hold. Mainly because I think it’s in the loss column, and it’s not worth paying the commission fees to try to unload it. Not that I can right now… NASDAQ has halted trading until they get some “information”.
You (stockholders) will be the last one to get paid if the company is liquidated. IIRC the pecking order is (some is left out because I have no idea where they fit in, but stockholders are dead last):
1 Uncle Sam (and the state)
2 attorneys (who do you think wrote the law - this is one of the reasons why they are hated so much)
3 salary
4 bond holders
5 accounts payable
6 stockholders
I hadn’t realized that this was the priority in the U.S.! I’m an executive officer of a public company here in Ontario, and AFAIK, the priority of debts for us is:
Salary (directors & officers of the company have ‘unlimited personal liability’ :eek: )
Taxes
Secured debts
Accounts payable
Shareholders
Oh, and we have D&O (directors’ and officers’) insurance ‘lest something dire happen to the company and go down owing a ton o’ salaries (or someone levels a shareholders’ lawsuit against us!).
Well, from an Operations persepective, what might happen is a reorganization of the outstanding issues. As has been said, common stock holders are at the bottom of the order for those purposes - bond holders and preferred stock holders will get preferential treatment in any settlement.
As far as the stock itself is concerned, I’m not an expert on capital gains, but I’m pretty sure your loss will be the purchase price of the stock, period. Your brokerage might send a note to let you know your stock is now worthless (gee, sorry, but . . .).
If the bankruptcy settlement results in a declaration the common stock is valueless, any physical stock certificates you hold are effectively worthless as well.
My WAG would be if the company closes after chapter 11, they would have to buy back your stock (for however many pennies it’s worth) and you would then be able to claim Capital Losses.