Can Stocks Recover from Chapter 11?
Yes, a stock can potentially come back from Chapter 11 bankruptcy, but the likelihood and extent of recovery vary significantly. Here are key points to consider:
- Chapter 11 Reorganization: Chapter 11 bankruptcy allows companies to reorganize and potentially emerge stronger. During this process, the company continues to operate while restructuring its debts and assets under court supervision. 12
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Outcomes for Shareholders:
- Cancellation of Old Shares: In many cases, the company's plan of reorganization will cancel existing equity shares, making them worthless. New shares may be issued, which could benefit new investors but not necessarily the original shareholders. 12
- Continued Use of Old Shares: In some instances, the company may continue using its old shares, which could regain value if the company successfully recovers. 1
- Last in Line: Common stock shareholders are typically last in line to recover their investments, behind bondholders and preferred shareholders. This means they may receive pennies on the dollar or nothing at all. 26
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Examples of Successful Recoveries:
- General Motors: GM filed for Chapter 11 bankruptcy in 2009 and, with government assistance, reemerged as a profitable company. However, the old shares were delisted and became worthless, while new shares were issued. 46
- Hertz: Hertz successfully completed its Chapter 11 restructuring process in 2021, emerging as a financially and operationally stronger company. However, the specifics of how shareholders were affected are not detailed in the provided sources. 4
- Bird: Bird emerged from Chapter 11 bankruptcy in 2024 under a new private parent company, Third Lane Mobility Inc., with a strengthened balance sheet and reduced operating expenses. The impact on shareholders is not specified in the provided sources. 7
- Investment Risks: Investing in companies undergoing Chapter 11 bankruptcy is risky. Even if a company reorganizes and continues to operate, the existing shares may be canceled, making them worthless. 6