Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11?

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11?
Date: Sun, 28 Jul 2002 22:44:12 -0400

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jans,

first, a corp has very little obligation to its common stock shareholders.
Not only are they unsecured, but they come in virtually last in the line of
"creditors", certainly behind any unsecured creditors that loaned money to
the corp.

In theory, if there are enough real assets to liquidate and pay off both the
secured and unsecured creditors, they there might be some cash to pay to
common stock shareholders, just doesn't work out that way usually. Asset
sale when you are in bankruptcy is a "fire sale", usually doesn't get full
value.

- ----- Original Message -----
From: <Spencer48@aol.com>
To: <canslim@lists.xmission.com>
Sent: Sunday, July 28, 2002 10:18 PM
Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11?


Tom:

     Does this mean that any bankrupt company that forms itself into a new
entity (perhaps by changing its name) can avoid its obligation to its common
shareholders because now the old shareholders are owners of a bankrupt
company?

     So the newly formed company can once again sell shares in the new
company (while legally ignoring its fiduciary obligations (for instance,
paying the old shareholders from any company assets left over after the
secured creditors and preferred shareholders are paid) the shareholders of
its old company?

     Isn't this (don't you think) like a legally sanctioned Ponzi scheme-ie,
the corporation big-boys are legally benefitting from running the company
into the ground?

jans


In a message dated 7/28/2002 9:24:55 PM Eastern Daylight Time,
stkguru@bellsouth.net writes:

<< The typical scenario is that a new corp is created, in which ownership is
by the secured creditors of the old corp, and possibly a partial ownership
by
the unsecured  creditors. Rarely do the common stock shareholders get any
ownership in the new corp. The assets are transferred to the new corp,
remaining debts are left with the old. The secured creditors swap their
claim
on assets of the old corp for ownership in the new corp. Net result,
shareholders are left with shares in a shell corp, owning only debt and no
assets>>

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