These ELI5 responses may be slightly tainted by your usage of an actual example. As you may now be aware, there are different types of bankruptcies and so tying into a specific case then comes with all the nuances that then muddy up a general understanding.
Generally speaking – in the event of bankruptcy, the company gets taken over by administrators with one main purpose – to pay back the creditors (lenders as much as they can). This is done usually through liquidation of assets i.e. cash, and selling of company property.
Importantly – with the company owners basically now obligated into prioritising settling debt, shareholders are usually prohibited from selling off their shares. If you have shares in Robinhood then expect the “Sell” button to be greyed out and disabled for your stock in this particular company.
>By claiming bankruptcy they just wash their hands of it? Who eats all the debt?
Well, the directors of the company now have it on record that they drove a company into bankruptcy – and I think they have to declare this whenever they apply for anything, including a managerial job.
If the admin can pay the lenders back whilst still leaving some value in the company then that’s a plus. Otherwise, if the company can’t generate enough money from the asset liquidation to pay off the debt, then the company becomes insolvent – and any remaining unpaid debt gets written off i.e. cancelled. The lenders lose their money.
Latest Answers