| While, legally, the management and directors now have a duty to do everything in their power to protect the interest of the creditors, that does not mean that their duty to the stockholders has gone away - it is only subordinate. Furthermore, bankruptcy courts do not exist to enrich creditors. If the company can reorganize in such a way that it can service some of its debts, then some portion of the debt will remain debt. Some, surely, must be offered equity in place of debt, but the court would consider the value of the assets relative to the debts (remaining and to be eliminated) before determining whether existing equity should be completely wiped out. Otherwise, if the value of the business exceeded the debts, wiping out the equity would unjustly enrich the creditors. If that's the way it works, why have bankruptcy courts at all? Why not just hand over the keys to the creditors at the first default instead of going through all these legal motions? |
