# Why don't you still own stock when a company emerges from Chapter Eleven Bankruptcy? **URL:** \ **Category:** Factual Questions\ **Created:** [May 19, 2004, 4:04am UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915 "2004-05-19T04:04:32Z")\ **Posts on this page:** 15\ **Page:** 2
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [May 22, 2004, 12:49pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/21 "2004-05-22T12:49:16Z")
It’s also worth noting that shareholders are the _last_ on the list of people that get paid off. bond holders, banks, other creditors all come in line before shareholders if there are any assets to distrubute or any kind of settlement. ---
**Author:** ![manhattan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manhattan/32/7_2.png) [@manhattan](https://boards.straightdope.com/u/manhattan)\ **Post date:** [May 22, 2004, 2:10pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/22 "2004-05-22T14:10:23Z")
> [@Roland Deschain](#): > > 1. When a company goes into Chapter 11, the article talks about how it can be transferred to creditors. Now, I understood that creditors could take the non exempt “assets” of company (equipment, buildings ect) in order to satisfy debts, but I didn’t think that this extended to the actual “on going concern of the business itself”. In a Chapter 11 process (as distinct from a Chapter 7, which is a liquidation) the case where the creditors take control of the going concern is actually much much more common than them seizing the assets. In fact, they _can’t_ take the assets – that’s the whole shield of Chapter 11 in the first place (there are exceptions, written into bankruptcy law). > [@](#): > > This implies that in at least in a bankruptcy setting that the real “equity” investors are the bond/debt holders since they are the ones who might end up with the company after it emerges That’s exactly right. When a company becomes insolvent, the creditors become the de facto “owners” of it. In fact, even prior to Chapter 11 in some cases, the company directors’ fiduciary responsibility transfers from being owed to “old” equity holders to the “future” equity holders – creditors. > [@](#): > > 1. Why don’t the stockholders automatically get to vote on these issues during a Chapter Eleven? After all if I owned 100% of the stock in a Corp. and we filed Chapter Eleven, I would be on all of the meetings and presumably have a say in whoat course of action (within the context of Chapter 11 rules) that we took. In a situation where the “old” equity of a company is cancelled entirely, there’s a procedure under which the equity holders are _deemed_ to vote no – no one’s gonna vote yes to that, right? So some administrative cost is saved by not collecting a bunch of “no” votes which the judge is going to override anyway. That said, notice is required, and I’m surprised by the earlier poster who did not get it. Normally, the bankruptcy court issues notice and some cash to DTC, which sends on the notice to brokers, which send it on to customers. > [@](#): > > 1. Several posters have referenced examples where “most of the same players” are involved in a company _after_ a Chapter Eleven, BUT that the previous stockholders are wiped out. How does this happen? How could the creditors take over a company disenfranchise the previous stockholders, and leave old management, and or employees in place? As a previous stockholder/owner couldn’t I assume that they shouldn’t be able to use “my” old companies name or benefit from “my” investments without my being compensated? But “your” old investment is gone. The company lost it, went bankrupt, passed the investment on to creditors. Let’s say you lose your home to foreclosure. The new owners can still have the same pool guy, alarm contract, etc. They’re not _obligated_ to use the same people, but they might make the same choices you did. That said, there’s a lot of criticism of Chapter 11 as it regards public companies to the effect that it gives management too much control of the process and that they use it to entrench and enrich themselves at the expense of all financial parties, creditors and old equity owners. Much more on that would be a subject for GD. For now, just know that it’s all right there in the Code and that many people are pissed about it. > [@](#): > > 1. Again, and this is of primary importance I don’t think that your average, individual investor realizes that a company could enter, and then emerge from Chapter Eleven as an on going business concern, all the while eliminating his ownership (as represented by stock) in the company. Every stock prospectus I know about warns of the risks of bankruptcy. What happens to the company, its assets, etc during bankruptcy if the old equity holders are wiped out isn’t really material to the old equity holders – they’re still wiped out. > [@](#): > > What would keep a privately held company from going public and then raising a bunch of money (in the form of sold, stock, shares) then entering Chapter Eleven to “wipe out” those shares? The original owners (before it went public) could ensure that they retained control when the company re-emerged by making sure that they held the primary debt positions to the company (thus they could lend the company money or otherwise grant themselves liens). Thus, they would have received some of the benefits of going public (such as raising the funds to expand nationally or regionally), and then “regained” the benefits of being a privately held corporation by “gaming” the system (and it would probably be legal unless intent could be proven which with the attorneys these guys use just isn’t going to happen very often). Lots of stuff. First, a bankruptcy judge has to approve a Chapter 11 filing. If a company walks into court with $40 MM on its balance sheet, a profitable business and no liabilities, a judge will throw out the filing. Next, not all creditors are created equal. Equity owners and others can and do attack debt positions held by insiders, trying to “equitibly subordinate” them – essentially, they try to convince the judge that the position in the capital structure (senior and secured in your example) is BS and that they should be “moved to the back of the line.” Some of the fight is statutory – insider transactions can be attacked as preferential for a full year, as opposed to non-insider transactions, which can only be attacked as preferential for 90 days. Other attacks rely on common-law fraud, etc. While managements have a lot of control of the process, the judge is the big guy in a case, and they don’t much like being made to look like fools. That said, I know people who have got away with precisely what you suggest – not so much in the public equity markets as the public debt markets. But it’s quite rare. ---
**Author:** ![ioioio](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ioioio/32/316_2.png) [@ioioio](https://boards.straightdope.com/u/ioioio)\ **Post date:** [May 23, 2004, 5:36pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/23 "2004-05-23T17:36:48Z")
I posted earlier about my Organogenesis stock being nullifed. Obviously, investing is risky and pleading ignorance of the fine points of bankruptcy law won’t get your money back, but the whole thing left a nasty taste in my mouth. When a struggling company has the option of reorganization bankruptcy, it can’t help but encourage the kind of behavior Organogenesis is being accused of. Quotes below are from [http://www.classactionamerica.com](http://www.classactionamerica.com) The full link is [http://www.classactionamerica.com/cases/goldInfo.asp?lngCaseId=3271&intCategoryID=1](http://www.classactionamerica.com/cases/goldInfo.asp?lngCaseId=3271&intCategoryID=1) > [@](#): > > Organogenesis Officers and Directors Accused of Illegally Privatizing Company, Destroying Shareholders’ Value > … > The defendants allegedly concealed the true operational and financial conditions of Organogenesis because it enabled insiders to sell over 6.2 million shares of company stock valued at over $68.8 million prior to any proper disclosure to the market. > … > The scheme also allegedly allowed defendants Erani and Ades and their family members to improperly acquire the remaining assets of Organogenesis through a leveraged buyout through bankruptcy proceedings – after their actions drove the company into bankruptcy and after they sufficiently interfered with these proceedings so as to guarantee that they acquired total domination and control over what was left of Organogenesis. It seems to me that the founders, directors and officers of the company helped themselves to tens of millions of dollars from people foolish enough to buy their stock. The “principle players” collected annual salaries of $200,000+. Now the stockholders are left with nothing, and the players still have a company, the company’s physical property, the ability to keep making and selling the company’s product, and probably great parking places as well. ---
**Author:** ![bare](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bare/32/471_2.png) [@bare](https://boards.straightdope.com/u/bare)\ **Post date:** [May 23, 2004, 8:00pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/24 "2004-05-23T20:00:35Z")
Yep, dirty buggers. I had several hundred shares in Kmart until they came out of bankrupcy. Imagine my surprise to find that my once worthless stock no longer existed. I was washed of my sin of believing in a loser company. Heck of a way to treat those who used to be your supporters. Makes me just want to run right out and buy something from them! ---
**Author:** ![ParentalAdvisory](https://avatars.discourse-cdn.com/v4/letter/p/53a042/32.png) [@ParentalAdvisory](https://boards.straightdope.com/u/ParentalAdvisory)\ **Post date:** [May 23, 2004, 8:23pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/25 "2004-05-23T20:23:40Z")
RDIQ, how appropriate for a company the goes belly up and makes your shares void. Our dick. ---
**Author:** ![manhattan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manhattan/32/7_2.png) [@manhattan](https://boards.straightdope.com/u/manhattan)\ **Post date:** [May 27, 2004, 2:01am UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/26 "2004-05-27T02:01:12Z")
> [@ParentalAdvisory](#): > > RDIQ, how appropriate for a company the goes belly up and makes your shares void. Our dick. Heh. Forgot to mention – “Q” as the last letter of a stock symbol is reserved for companies which are in bankruptcy. So in the example presented, when the OP went public his company would have a symbol like RDIN or whatever ( **important note! I ain’t looking up any stock symbols to see if I’m duplicating a symbol of a real company! If there’s a real RDIN or RDIQ it’s a coincidence and nothing at all should be read into it!** ). After the company goes into Chapter 11, the NASD would reassign the symbol to something like RDIQ. ---
**Author:** ![yabob](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/yabob/32/2821_2.png) [@yabob](https://boards.straightdope.com/u/yabob)\ **Post date:** [May 27, 2004, 2:19am UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/27 "2004-05-27T02:19:38Z")
> [@manhattan](#): > > Heh. Forgot to mention – “Q” as the last letter of a stock symbol is reserved for companies which are in bankruptcy. So in the example presented, when the OP went public his company would have a symbol like RDIN or whatever ( **important note! I ain’t looking up any stock symbols to see if I’m duplicating a symbol of a real company! If there’s a real RDIN or RDIQ it’s a coincidence and nothing at all should be read into it!** ). After the company goes into Chapter 11, the NASD would reassign the symbol to something like RDIQ. Except the NASDAQ special suffix conventions are usually done by adding a fifth letter - RDIN -\> RDINQ, for instance. This avoids conflicts involving the trailing letters of normal 4 letter symbols. What annoys me is that they’ve taken to slapping a temporary “D” suffix (“new issue of existing stock”) on companies following splits until everybody gets used to the idea that it’s split, then taking it off again. Here’s the NASDAQ symbol conventions: [http://www.stockwiz.com/conventions.html](http://www.stockwiz.com/conventions.html) Watch out for those “E’s” too (“deliquent in filing”). ---
**Author:** ![OxyMoron](https://avatars.discourse-cdn.com/v4/letter/o/e9a140/32.png) [@OxyMoron](https://boards.straightdope.com/u/OxyMoron)\ **Post date:** [May 27, 2004, 3:59am UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/28 "2004-05-27T03:59:54Z")
Just to make sure everyone understands, I’m going to expand one of **Manny’s** excellent points (without necessarily improving on it, but I’ll try): 1. It’s called “common” stock because, well, it’s so drearily _common_. See, in bankruptcy and/or insolvency, the common stockholders get what’s left of the carcass after everyone else has been to the buffet. If you didn’t know this before you invested, you bear some responsibility for not having ejjamacating yourself. Of course, your broker should also have ejjamacated you, by saying something along the lines of, “You putz! Sell K-Mart or you’ll be left with nothing!” If you didn’t ejjamacate yourself, and you’re your own broker, well, my heart don’t bleed. 1. As **Manny** said, bankruptcy disclosure is _always_ written into the prospectus. The fact that not one out of a thousand shareholders ever _reads_ the prospectus makes life much happier for offering companies and their counsel (of which I used to be one). 2. Is this system unfair? IMHO, no, and not only because I used to be a securities counsel who worked on a bankruptcy reorganization or two. Although common stockholders are the ultimate, backstop owners, they don’t exactly expend a lot of effort in being owners - and they can leave at any time. Conversely, creditors are often pretty intimately involved with the company, particularly if their loans are secured by assets. That also makes it harder for them to leave, and more justifiable for them to seize control in the event things go seriously south. In between are folks like preferred stockholders, or bondholders, who get their preferences normally because they’ve got more negotiating power - they’re ponying up a _lot_ more money than you did as a buyer of common stock. But note that the existence of debt/preferred stock/etc. is always disclosed, as is the power to issue such. If you buy common stock in a company whose certificate of incorporation says that it can, at any time, for any reason, dilute the value of your holding to almost nothing by issuing a gazillion shares of preferred, or encumber all of the assets through massive bond sales, all without calling for a vote of the common stockholders - then you have no cause to complain if the company ends up making use of those provisions. Making money in the stockmarket is _not_ easy. Which is why I prefer to go to professionals to take care of my investments, because at least they’re fiduciaries to me and I have a fraction of a glimmer of recovery if they really screw up. Whereas if I really screw up, it’s hopeless. ---
**Author:** ![Shade](https://avatars.discourse-cdn.com/v4/letter/s/2bfe46/32.png) [@Shade](https://boards.straightdope.com/u/Shade)\ **Post date:** [May 27, 2004, 10:24am UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/29 "2004-05-27T10:24:11Z")
Here are some hypothetical examples; do they correspond roughly? (1) Barney wants to start a window cleaning business. Alfred invests $1000, which Barney uses to buy a van and a ladder. Soon the company is a massive multinational, Alfred owns it all, and Barney is paying himself a nice big sallary. (2) Same as before, but after a couple of weeks there’s an accident and the ladder is destroyed in a fire. Barney tries to borrow some money for a new ladder, but can’t. The business is over. He can’t keep up payment on the van, and Clare from the garage reposesses it. Alfred and Barney have lost everything. (3) Same as before, but Clare comes back in a week and says “Hmm… well I don’t need a van, and you do. Tell you what, I’ll invest this van, and you can go on running your business, but I’ll own it instead of Alfred.” Alfred has lost everything, but Barney and Clare are OK. (4) Same as before, but Alfred then discovers that the lader wasn’t that the ladder wasn’t damaged very badly at all, and was thrown away as it was still usable. Clare found it, cleaned it, and lent to Barney along with the van. Later than year, Clare and Barney are married. Alfred raises holy hell. (5) Alfred loses everything, but wasn’t paying attention, because he had a lot of investments, and doesn’t really know Barney. He’s not sure if this is (2) or (3). He asks Dave and Erol and Fred on a messageboard he frequents. ---
**Author:** ![dorfl](https://avatars.discourse-cdn.com/v4/letter/d/59ef9b/32.png) [@dorfl](https://boards.straightdope.com/u/dorfl)\ **Post date:** [May 27, 2004, 11:54am UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/30 "2004-05-27T11:54:09Z")
I always found it best to think in value terms. (1) The one thing you need to know about basic finance: The value of a company is the present value of its future pe-interest payment post-tax cash flows. (If you are interested, you can look this up in any undergrad finance book.) Investors estimate this present value, and buy the stock if the price is below their share of it (and sell if the price is higher). (2) Certain entities have a claim to this value. There is a pecking order. Roughly speaking and ignoring details, the first claim is secured debt holders[1]. The second are unsecured debt holders, the third preferred equity, the last common equity. (3) The pecking order determins risk and reward - secured debt has a lower interest rate than unsecured. Shareholders demand the highest return since they are last in line when the value is distributed Now, let’s take a ficticious example, Augusta’s company. The management published financial statements that made investors believe that the net present value of the future cash flows is $1billion. Let’s say the company has $600 million debt and $400 million common stock (equity). Turns out, management published fraudulent reports, and the future is bleak. The following is grossly simplified, but is basically what happens Scenario 1: Given the new information, the present value of the future cash flows is now estimated to be $500 million only. This is **less** than the claim of the debt holders. Remember the pecking order? At this point, the debt holders have the right to the whole value of the company, the shares are worth nothing[2]. But the company cannot survive like this, so it is restructured in a Chapter 11 proceeding. The debt holders agree to (and the court confirms) a plan in which the company has $300 million **new** debt and $200 million **new** shares outstanding. (Note that this is **not** the same as the old shares). All of this value - the new debt and the new equity - goes to the old debt holdrs since they were first in the pecking order. Shareholders get nothing - their claim is worthless. They knew this could happen (and their reward if things had gone right would have been higher than the reward of the debt holders) Scenario 2: The company’s value is estimated to be $650 million. Shares drop from $400 million to $50million. Scenario 2a: The company can pay interest. Shares stay low, shareholders sue. Scenario 2b: The company cannot pay its interest, the debt goes into default[4]. Two things can happen. Either the debt holders restructure the debt (e.g., lower interest now in return for higher interest later), or a Chapter 11 proceeding. Most likely, old shareholders will get some of the new equity, since their share of the value is larger than zero. They will get new shares in exchange for the old shares. Hope I did not confuse the issue more Dorfl [1] 'Secured" means the debthholder has a lien on a real asset, e.g., a building. If the company goes under, the bank could get the building, hence the risk is lower than for an unsecured loan [2] Share will most likely still trade above zero due to (a) option value [3], and \*\* stupidity [3] Don’t ask, please. Visit a financial website first. Please. [4] Some debt goes into automatic dfault when fraud is discovered ---
**Author:** ![dorfl](https://avatars.discourse-cdn.com/v4/letter/d/59ef9b/32.png) [@dorfl](https://boards.straightdope.com/u/dorfl)\ **Post date:** [May 27, 2004, 12:14pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/31 "2004-05-27T12:14:39Z")
> [@](#): > > (1) Barney wants to start a window cleaning business. Alfred invests $1000, which Barney uses to buy a van and a ladder. Soon the company is a massive multinational, Alfred owns it all, and Barney is paying himself a nice big sallary. Sort of. Alfred as the main shareholder agrees to Barney’s salary. Alfred’s board also needs to agree. Note that Barney’s reward is huge as he took a lot of risk. > [@](#): > > (2) Same as before, but after a couple of weeks there’s an accident and the ladder is destroyed in a fire. Barney tries to borrow some money for a new ladder, but can’t. The business is over. He can’t keep up payment on the van, and Clare from the garage reposesses it. Alfred and Barney have lost everything. You assume that Barney has debt to pay down for the van. That means that Clare has a claim against the business. If Barney bought an old van for his $1,000, and the company has no debt, Clare has no claim. If Clare has a claim, she would go and get the van. Her claim required a lower payment than Barney’s (e.g., 6% interest vs. Barney’s potential 10000% return). That’s why her risks is lower. Note that Barney could also say “I am willing to put another $1000 in the business to but a new van” Also, you assume general stupidity since the ladder was not insured. Might be a good assumption, but it is important: An insurance lowers Barney’s reward (because as the shareholder, he basically pays for it), but also lowers his risk (in this case, risk of catastrophe). > [@](#): > > (3) Same as before, but Clare comes back in a week and says “Hmm… well I don’t need a van, and you do. Tell you what, I’ll invest this van, and you can go on running your business, but I’ll own it instead of Alfred.” Alfred has lost everything, but Barney and Clare are OK. That is correct if Clare has a claim, and the business is worth enough to pay her claim. If not, she would not do this. Note that the business is worth less than before since it has to buy a new ladder. Where does that money come from?Again, note that Barney could come up with another $1,000. Or maybe Clare. Barney lost everything because management (or he himself) did not agree to the insurance to lower his his risk (and reward!) > [@](#): > > (4) Same as before, but Alfred then discovers that the lader wasn’t that the ladder wasn’t damaged very badly at all, and was thrown away as it was still usable. Clare found it, cleaned it, and lent to Barney along with the van. Later than year, Clare and Barney are married. Alfred raises holy hell. That can indeed happen, but it is still unlikely that the business is worth as much as before. For instance, the repaired ladder will not last as long as the new one, and the business has to buy a new ladder in 3 years, not in 10 years as originally planned. Hence, the business is not worth as much as it was before. In this case, the business seems to be worth enough to pay the claim that Clare has, but not enough to pay the claim that Barney has. In reality, this is the exact decision the court has to make in a chapter 11 proceeding: (1)How much is the business worth, and (2) who gets it? Courts look at valuations based on a discounted cash-flow analysis, as decribed roughly in my previous post. > [@](#): > > (5) Alfred loses everything, but wasn’t paying attention, because he had a lot of investments, and doesn’t really know Barney. He’s not sure if this is (2) or (3). He asks Dave and Erol and Fred on a messageboard he frequents. He also asks his neighbor, the nice lawyer with the 4 big cars. The neighbor sues the company for damages. In the end, the company has to pay $1,000. The lawyer gets $500, Alfred gets half of his investment back, and the company is broke again. Dorfl ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [May 27, 2004, 1:39pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/32 "2004-05-27T13:39:45Z")
> [@Roland Deschain](#): > > Okay, this thread begs the following question: If as a stockholder you are not the “real owner” of the company (as demonstrated by the fact that the company can enter Chapter 11, re-emerge and you are no longer involved) then WHO is? ? Nope. You _are_ the owner of the company. What happens is the following : -You’re the owner of the company -The company goes bankrupt. It has more liability than it’s worth. -The creditors reposess whatever they can (this include the goods, the buildings, and even the brand name) -You don’t own anything anymore since the whole company is now the property of the creditors. -The new owners (or someone else they sold the assets to) decide that once reorganized, the business has some future. They recreate a company, keep the former name, sell new stocks, etc… -There’s a new company, going with the same name that you aren’t anymore the owner of. Actually, it’s exactly the same that if, say, you owned a pop and mom grocery. You go bankrupt. All your assets, including your shop are repossesed/sold by your creditors. Someone buy the shop. He decides to stay in the grocery business, and to keep the former name of your grocery. So, your former business still exist, with the same name, but with a different owner. I assume that you understand what hapenned in this case. It’s the same with a company and its owners (people who have stocks). Whatever they owned has been sold to cover (partially) the debts. They don’t own anything anymore. Then, the company is recreated but owned by someone else. You haven’t been ripped off. You’ve just lost everything, and the new company is totally unrelated to you and the former one, even if it uses the same name. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [May 27, 2004, 1:53pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/33 "2004-05-27T13:53:06Z")
> [@bare](#): > > Yep, dirty buggers. I had several hundred shares in Kmart until they came out of bankrupcy. Imagine my surprise to find that my once worthless stock no longer existed. I was washed of my sin of believing in a loser company. > > Heck of a way to treat those who used to be your supporters. Makes me just want to run right out and buy something from them! I’m not sure what’s your issue here. You owned a company that went bankrupt. To some extent, the management was actually your employees. You already had your cake and ate it, since you didn’t have to sell on your _personnal_ assets (your house, car, etc…) to reimburse the debts of _your_ company, since it’s a corporation. You just lost the value of your investment. And the new owners owe nothing to you. What you supported was a former, now extinct company, not the new one which goes by the same name. Like in my former example, it would be like complaining to the guy who bought your shop when you had to sell it, and stating that since you used to be the owner, he owes you something. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [May 27, 2004, 2:32pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/34 "2004-05-27T14:32:54Z")
Let’s turn the example around for even more clarity. I start Kunilou’s Chinese Restaurant. I sweat and slave a a meager living out of it for years. Finally I’m old, my back is hurt and I smell like soy sauce. I sell the restaurant for a few bucks and decide to retire. The new owner wants to keep the name Kunilou on the place. What do I care, I say yes. A couple of years later, the new owner invents Kunilou’s zombie brain pizza, cooked perfectly by 1920s style death rays. He makes a kajillion bucks. Do I get any of it? No, because I lost my claim when I sold the name and assets of my business to someone else. Whether you sell it, or you lose so much money someone has to come in and take it, it works the same way. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [May 27, 2004, 4:49pm UTC](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915/35 "2004-05-27T16:49:01Z")
Right, as Clairobscur pointed out, the brand name and trademarks of a company have value. So when a company goes into bankruptcy and the assets are divided among the creditors, among those assets is the company name. So if the creditors decided to open a new business using the old company’s brand name, and using the old company’s storefronts and employees that’s just because they think it would be the best way to recover some of the money they lost to the old bankrupt company. The owners of the old company have nothing to do with the new company, even though it has the same name, storefronts, and employees, maybe even the same management. They lost everything. But the creditors who own the new company didn’t screw the old owners out of anything, since the creditors almost certainly didn’t get the full value of their loans, otherwise the old company would have been able to pay them. Of course, if the management of the company fraudulently claims that the company is worthless, takes the company through bankruptcy and gets a judge to transfer ownership of the company from the stockholders to creditors that just happen to be his golfing buddies, then he has commited a crime. But if a company you invest in genuinely goes bankrupt you as an investor have lost your entire investment. It doesn’t matter that the people who loaned the company money are running a new company with the same name, you lost everything. That’s the difference between an owner and a creditor. As an owner you have an unlimited upside (if the company makes a kajillion dollars), but are at risk of losing your entire investment if the company fails. As a creditor your upside is only that the company will pay you back your money at the agreed upon rate of interest, and you are partially protected from losing all your money because the company’s assets can be sold during bankruptcy to pay you back. [Previous page](https://boards.straightdope.com/t/why-dont-you-still-own-stock-when-a-company-emerges-from-chapter-eleven-bankruptcy/245915.md?page=1)