Bankruptcy is a federal court process designed to help consumers and businesses eliminate debt or repay debts under the protection of the bankruptcy court.
There are two categories of bankruptcy, "liquidation" or "reorganization":
If a company declares bankruptcy under Chapter 11, it will attempt to reorganize. Under Chapter 11, a reorganization plan is affirmed by the votes of the creditors. Management may continue to run the business, but the bankruptcy court must approve all significant business decisions.
There are certain steps that the company must follow in developing a reorganization plan. This includes:
A company's stock may continue to trade even after it has filed for Chapter 11 bankruptcy. Even when a company is no longer listed on a major stock exchange, their shares can still continue to trade. If the company comes out of bankruptcy, there may be two different types of common stock: the old (on the market before the company filed for bankruptcy) and the new (issued as part of the company's reorganization plan). If the old common stock was traded, it will have a five-letter ticker symbol, ending in "Q" (indicating the bankruptcy proceedings). The new common stock will have no such distinction.
Since bankruptcy falls under federal law, consulting a lawyer may be useful for those unfamiliar with the complexities of federal law. A company contemplating filing for Chapter 11 should seek an attorney to help them through the complicated process. An attorney may be best able to determine the proper and most advantageous course of action.
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Last Modified: 05-13-2014 04:43 PM PDTLaw Library Disclaimer
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