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Thread: Emerging Kodak

  1. #21

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    Quote Originally Posted by alanrockwood View Post
    Buying stock in Kodak prior to their emerging from bankruptcy is absolutely, without a doubt, the worst thing one could possibly contemplate. To begin with, even purchasing 100% of the shares will not give you control. The company is in bankruptcy, and control is now formally in the hands of the court and effectively in the hands of the creditors. Shareholders are powerless in this situation.

    Furthermore, the chance that shareholders will retain any value when the company emerges from bankruptcy is zero. For example, suppose you were to invest, let us say, $10,000,000 in kodak shares today and hold them until the company emerges from bankruptcy. When the company emerges from bankruptcy your shares will have a value of $0.00, that's zero, as in absolute zero, as in not worth even one penny.

    This is not a good investment strategy.

    It all comes down to how things work in a bankruptcy. Without going into much detail, in a bankruptcy there is a sort of prioritization that takes place for claims on company resources. Shareholders are last in line. This means that every class ahead of the shareholders must be made whole before the shareholders get anything. Since the company owes more money than the value of its assets, the current shareholders will be left out in the cold. If there is to be an operating company at the end of all this it will not be owned by the current shareholders.

    The typical scenario is for the old shares to be cancelled, and new shares are to be issued to the current bond holders. Thus, the current shareholders get nothing, and the company will end up being owned by the current bond holders.
    I was joking
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  2. #22
    AgX
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    In case Kodak resurrects from bancruptsy as the same legal entity, the old shareholders are still in hold of their part/share of Kodak.
    This of course does not say anything of a future stock price nor of a future dividend from Kodak.


    Quote Originally Posted by alanrockwood View Post
    Without going into much detail, in a bankruptcy there is a sort of prioritization that takes place for claims on company resources. Shareholders are last in line. This means that every class ahead of the shareholders must be made whole before the shareholders get anything. Since the company owes more money than the value of its assets, the current shareholders will be left out in the cold. If there is to be an operating company at the end of all this it will not be owned by the current shareholders.
    Shareholders are debtors, how could they get their money back anyway?




    Or do I miss something?
    Last edited by AgX; 03-16-2013 at 11:16 AM. Click to view previous post history.

  3. #23
    bobwysiwyg's Avatar
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    It's my understanding that existing common shares generally become worthless as a result emerging from Chapter 11 bankruptcy. Sell if you got'm.
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  4. #24

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    Quote Originally Posted by AgX View Post
    In case Kodak resurrects from bancruptsy as the same legal entity, the old shareholders are still in hold of their part/share of Kodak.
    This of course does not say anything of a future stock price nor of a future dividend from Kodak.




    Shareholders are debtors, how could they get their money back anyway?




    Or do I miss something?
    I see you are from Germany. Perhaps bankruptcy laws are different there. Under US bankruptcy law the shareholder is last in line to get anything in a bankruptcy. It is virtually unheard of for shareholders to receive anything in a bankruptcy. Exceptions to this generalization are EXTREMELY rare and even those few rare exceptions virtually always involve special circumstances, such as the Texaco bankruptcy. I believe the shareholders survived that one.

    The priority for payout in a bankruptcy runs roughly like this. The government gets paid first (taxes). Then wages to workers get paid, including any back wages owed. Then various forms of secured debt, i.e. debt backed by collateral, then unsecured debt. At the very tail end of the priority list come the shareholders. If the creditors don't get paid what they are owed then the shareholders lose ownership of the company. Their shares are cancelled and become worthless. If the company emerges as an operating company it does so under new ownership, usually being owned by the former creditors as partial compensation for not having been paid all the money they were owed.

  5. #25

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    Quote Originally Posted by Darkroom317 View Post
    I was joking
    Sorry, I didn't realize you were joking.

  6. #26

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    By the way, the good news for the owners of the corporation (the shareholders) is that they are not personally responsible for the money the company owes. Thus, they may lose every penny the spent buying shares, but at least they don't have to pay the company's debts by dipping into their own pocket. That's part of the basic deal a shareholder signs up for.

  7. #27

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    Quote Originally Posted by alanrockwood View Post
    I see you are from Germany. Perhaps bankruptcy laws are different there. Under US bankruptcy law the shareholder is last in line to get anything in a bankruptcy. It is virtually unheard of for shareholders to receive anything in a bankruptcy. Exceptions to this generalization are EXTREMELY rare and even those few rare exceptions virtually always involve special circumstances, such as the Texaco bankruptcy. I believe the shareholders survived that one.

    The priority for payout in a bankruptcy runs roughly like this. The government gets paid first (taxes). Then wages to workers get paid, including any back wages owed. Then various forms of secured debt, i.e. debt backed by collateral, then unsecured debt. At the very tail end of the priority list come the shareholders. If the creditors don't get paid what they are owed then the shareholders lose ownership of the company. Their shares are cancelled and become worthless. If the company emerges as an operating company it does so under new ownership, usually being owned by the former creditors as partial compensation for not having been paid all the money they were owed.
    Almost exactly the same procedure and priorities apply in the U.K.

  8. #28

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    Quote Originally Posted by AgX View Post
    In case Kodak resurrects from bancruptsy as the same legal entity, the old shareholders are still in hold of their part/share of Kodak.
    This of course does not say anything of a future stock price nor of a future dividend from Kodak.




    Shareholders are debtors, how could they get their money back anyway?




    Or do I miss something?
    The bankruptcy may involve some form of restructuring or issue of new classes of shares, so the old shareholders may or may not still have a holding in the company.

    Technically, shareholders are the last-in-line of the creditors, not debtors. (Debtors are those who owe money to the company. In Victorian times, debtors who didn't pay what they owed to others could be put in "Debtors Prisons"...that's how we were taught to remember the difference when I was a student! )

  9. #29
    AgX
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    Interesting. In Germany the shareholders are regarded in case of insolvency as debtors, as part of the owners.
    However they are spared from paying to the creditors. The shareholder only stands for what he brought into the company.

  10. #30
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    I've held stock in a company that went bankrupt. Well, actually I saw it coming and sold for pennies on the dollar and got a few hundred for my roughly bought-for-$3k of stock. Those who held out all the way, if anyone was foolish enough to do so, lost it all. (Don't ask, it's too embarrassing - chalk it up a techie betting on a tech recovery based on knowledge of the product, not economics at the time.)

    The only reason to buy stock in a company that's in bankruptcy would be for a quick flip since the penny stock prices can fluctuate rapidly and even a small amount of change is a large percentage at such prices. So if you feel lucky and want to gamble, the odds (if you watch a bit and have an idea) are probably no worse than Vegas, or not much worse anyway.

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