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Chapter 11

A court-supervised reorganization in which a company keeps operating while it restructures its debts; existing common stock is usually, but not always, wiped out.

Filing does not stop the business; it stops the creditors. Management typically stays in control as debtor in possession, an automatic stay halts collection, and the company negotiates a plan-of-reorganization that says who owns the company afterwards. Distribution follows the absolute-priority-rule, so common equity is last.

The stock keeps trading, usually delisting to the over-the-counter market with a bankruptcy-ticker-suffix, and it routinely rallies on procedural headlines even when the plan on file gives common holders nothing. The plan document, not the price action, is where the answer is.

Example: a company owes $2.1B and the enterprise is valued at $1.4B in the plan. Unsecured creditors recover 67 cents and receive all the new equity. Old common receives nothing, though it traded at $0.31 the week before confirmation.

Related: chapter-7, absolute-priority-rule, plan-of-reorganization, post-reorganization-equity, equity-committee

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