Who Owns a Company After Chapter 11?
After a company files for Chapter 11 bankruptcy and undergoes the reorganization process, the ownership structure can change significantly. Here are the key points to understand:
- Continuation of Operations: Under Chapter 11, the company continues to operate while it reorganizes its debts and assets. This means that the existing management may still be in control, but under the supervision of the bankruptcy court. 23
- Reorganization Plan: The company must develop a reorganization plan that outlines how it will repay its creditors and restructure its debts. This plan must be approved by the bankruptcy court and may include provisions for issuing new stock or bonds to creditors in exchange for their claims. 13
- Change in Ownership: In many cases, the existing shareholders may lose their equity in the company. This is because the reorganization plan often involves canceling the old shares and issuing new shares to creditors or investors who are part of the reorganization process. 145
- Priority of Claims: The order of repayment in a Chapter 11 bankruptcy typically follows this hierarchy:
- New Ownership: After the reorganization, the company may be owned by its former creditors, who have exchanged their debt claims for equity in the reorganized company. This means that the original shareholders may no longer have a stake in the company. 145