5 ms·

Chapter 11 petitions have been accurately and usefully described in other comments, I justed wanted to add, chapter 11 doesn't "cap" or "downfall" anything, jus

Chapter 11 petitions have been accurately and usefully described in other comments, I justed wanted to add, chapter 11 doesn't "cap" or "downfall" anything, just as record profits don't cap or downfall anything. It's an orderly measure to try to preserve as much value as possible for stakeholders.

chii 3y ago
The question is, who gets the short end of the stick under such circumstances?
- httpz 3y ago
  The court decides but the rules are quite literally written in the Chapter 11 of the United States Bankruptcy Code. The shareholders usually gets the shortest end of the stick.
  - SoftTalker 3y ago
    I believe creditors are first in line. Then preferred shareholders, then common shareholders.
    - TylerE 3y ago
      There is a lot more to it than that. For instance, employees mostly come before other creditors.
      - wredue 3y ago
        How is it that time and time again, business die and the executives walk away with a parachute while the regular employees walk away with not even the rest of their pay, but hacker news and Reddit consistently states the regular employees come first? The anecdotes are not aligning with the observations. So what’s the deal here?
        fsckboy 3y ago
        if there's any money at all, employees get their pay. Shareholders can be forced to go in their pockets and pay employees wages due. I don't know of this happening to a large corp, but if a local restaurant goes bankrupt, or a local construction company, and the owner is not also bankrupt, they can be forced to pay employees. Usually they are also bankrupt. Not sure if those debts survive through personal bankruptcy. You may be referring to employees losing retirement or other benefits like that, but the worst of those loopholes have been closed (the pension can't be in the company's own stock, that type of thing)
        chii 3y ago
        > Shareholders can be forced to go in their pockets no they cannot. Shareholders can only lose at most the capital they put in originally - they cannot be liable for additional debt. > the owner is not also bankrupt, they can be forced to pay employees. That would be because the owner mixed their own personal wealth with their business (e.g., as a single entity), instead of a limited liability company. Therefore, any assets the owner has is subject to be sold to pay the debt of the business. It's why only small businesses, owned by a single owner (who would have nothing else) is done this way (cheaper administratively i presume).
        lazide 3y ago
        Not true in many locations specifically for unpaid wages: https://cmmllp.com/shareholder-liability-for-unpaid-wages/#:~:text=If%20payment%20is%20not%20made,his%20or%20her%20employment%20terminates https://cmmllp.com/shareholder-liability-for-unpaid-wages/#:....
        chii 3y ago
        That is fair enough. I did not realize this was enacted about 5 years ago.
        TylerE 3y ago
        That seems to be New York State soexific( rather than federal.
    - asaddhamani 3y ago
      Do preferred shareholders still get their liquidation preference in a bankruptcy? I don’t think they should, they are usually the ones responsible for the bankruptcy. Common shareholders are going to be the employees in this case with ESOPs or RSUs, getting the shortest end of the stick.
      - httpz 3y ago
        Preferred shareholders can be VCs who are usually not directly responsible for the bankruptcy. Also, WeWork is a public company so common shareholder can really be anybody, not necessarily all employees.
  - quickthrower2 3y ago
    https://www.law.cornell.edu/uscode/text/11/507 https://www.law.cornell.edu/uscode/text/11/507
- tomhoward 3y ago
  In theory the existing shareholders should be the first to lose their stake - though those with inside access can benefit by re-investing at a low price once the restructuring is complete. Those owed debts can lose much of what they are owed. In the case of WeWork, landlords will likely lose a lot of owed rent, and lease agreements will be cancelled or renegotiated at much lower rates. Employees are meant to be at the top of the list to be paid what they’re owed, but that’s still contingent on funds being available to pay them.
- throwaway2037 3y ago
  Usually the lenders / creditors.

chii 3y ago

The question is, who gets the short end of the stick under such circumstances?

httpz 3y ago
The court decides but the rules are quite literally written in the Chapter 11 of the United States Bankruptcy Code. The shareholders usually gets the shortest end of the stick.
- SoftTalker 3y ago
  I believe creditors are first in line. Then preferred shareholders, then common shareholders.
  - TylerE 3y ago
    There is a lot more to it than that. For instance, employees mostly come before other creditors.
    - wredue 3y ago
      How is it that time and time again, business die and the executives walk away with a parachute while the regular employees walk away with not even the rest of their pay, but hacker news and Reddit consistently states the regular employees come first? The anecdotes are not aligning with the observations. So what’s the deal here?
      - fsckboy 3y ago
        if there's any money at all, employees get their pay. Shareholders can be forced to go in their pockets and pay employees wages due. I don't know of this happening to a large corp, but if a local restaurant goes bankrupt, or a local construction company, and the owner is not also bankrupt, they can be forced to pay employees. Usually they are also bankrupt. Not sure if those debts survive through personal bankruptcy. You may be referring to employees losing retirement or other benefits like that, but the worst of those loopholes have been closed (the pension can't be in the company's own stock, that type of thing)
        chii 3y ago
        > Shareholders can be forced to go in their pockets no they cannot. Shareholders can only lose at most the capital they put in originally - they cannot be liable for additional debt. > the owner is not also bankrupt, they can be forced to pay employees. That would be because the owner mixed their own personal wealth with their business (e.g., as a single entity), instead of a limited liability company. Therefore, any assets the owner has is subject to be sold to pay the debt of the business. It's why only small businesses, owned by a single owner (who would have nothing else) is done this way (cheaper administratively i presume).
        lazide 3y ago
        Not true in many locations specifically for unpaid wages: https://cmmllp.com/shareholder-liability-for-unpaid-wages/#:~:text=If%20payment%20is%20not%20made,his%20or%20her%20employment%20terminates https://cmmllp.com/shareholder-liability-for-unpaid-wages/#:....
        chii 3y ago
        That is fair enough. I did not realize this was enacted about 5 years ago.
        TylerE 3y ago
        That seems to be New York State soexific( rather than federal.
  - asaddhamani 3y ago
    Do preferred shareholders still get their liquidation preference in a bankruptcy? I don’t think they should, they are usually the ones responsible for the bankruptcy. Common shareholders are going to be the employees in this case with ESOPs or RSUs, getting the shortest end of the stick.
    - httpz 3y ago
      Preferred shareholders can be VCs who are usually not directly responsible for the bankruptcy. Also, WeWork is a public company so common shareholder can really be anybody, not necessarily all employees.
- quickthrower2 3y ago
  https://www.law.cornell.edu/uscode/text/11/507 https://www.law.cornell.edu/uscode/text/11/507
tomhoward 3y ago
In theory the existing shareholders should be the first to lose their stake - though those with inside access can benefit by re-investing at a low price once the restructuring is complete. Those owed debts can lose much of what they are owed. In the case of WeWork, landlords will likely lose a lot of owed rent, and lease agreements will be cancelled or renegotiated at much lower rates. Employees are meant to be at the top of the list to be paid what they’re owed, but that’s still contingent on funds being available to pay them.
throwaway2037 3y ago
Usually the lenders / creditors.