Originally Posted by tgtg
When they reorg...the stock will become worth precisely $0.
I agree completely with this.
Originally Posted by tgtg
Beats me why the SEC allows a stock to trade while the company is in BK. When it comes out, the company is stolen from the owners and given to the creditors...and I thought BK was to protect the company from being seized by the creditors...more big business games.
I disagree completely with this paragraph. Chapter 11 doesn't protect the company from being siezed by creditors FOREVER, just for a while, to give the company time to formulate a plan for continued existence. The alternative is liquidation (which is common in most other countries which lack a corollary to Ch 11).
Common shareholders knew the risk that they would be wiped out when they invested. If they didn't, then they should have taken another community college class in the basics of investing.
The company isn't "stolen" from the stockholders - they are simply the last to be paid in the event of a liquidation or a reorganization under our bankruptcy laws. So when Plans of Reorganization fail to provide 100% for all creditors, then the common stock is canceled (as it should be).
As to why you can trade it during bankruptcy? Because it hasn't been canceled yet - the corporate statutes of all jurisdictions require that there always be a class of common stock in existence. Until the debtor's POR is approved, the old common stock satisfies that statutory requirement. The SEC doesn't care if the holders of almost worthless (soon to be canceled) stock sell it to others, as long as no fraud is involved.