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Non-Tech : Boston Market (BOSTQ)
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To: L.B.Nguyen who wrote (1354)6/19/1998 7:44:00 PM
From: Daniel Chisholm  Read Replies (2) of 1567
 
Other way around. Chapter 11 is protection from creditors while a re-organization is attempted. Chapter 7 is liquidating the business.

There is an implication of hope in Chap. 11, in that it is felt that the business (not necessarily the shareholder's investment) might be saved. Chapter 7 means it's all over, and all that's left to do is to fight over the pieces.

Keep in mind that bankruptcy means that the (shareholder's) equity of the company has been exhausted, and liabilities exceed assets. Remember that the shareholders don't get anything until the creditors get everything they are due.

There are a number of different classes of creditors whose claims must be satisfied ahead of the shareholders.

First are the employees (payroll, etc) and the secured creditors (banks, bondholders, perhaps preferred stock holders).

Next are the unsecured creditors (typically suppliers).

Then are the common shareholders.

Since (common) shareholders are at the back of the line, it is not surprising that they often get little or nothing, and lose 100% of their investment.

If the company's creditors are not happy with receiving less than 100% of what is due them, sometimes they will accept equity in the company instead - i.e., ownership of the company is transferred from the shareholders to the creditors.

- Daniel
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