Where does a company’s wealth go if they go bankrupt?
In: 7
Depends on the type of bankruptcy. Chapter 11 is a restructuring. It just means the business keeps going and renegotiates its outstanding debt, getting some of it cancelled. Some lenders will lose money, it depends on the type of debt. But assets are usually not sold as the business intends to continue working. So in general nowhere in this case.
Chapter 7 is complete liquidation. The business’s assets and cash get distributed to lenders according to a priority. Usually it goes something like secured bonds (very low interest rate but first in line in cases like this), then bond holders, then shareholders (this gets pretty complicated and depends on specifics and state). In this case the company is gone afterwards. The name might get sold, but the company is effectively dead.
If you want a good picture of how shafted some lenders can be, look at FTX. Depositors and investors in any financial institution are like lenders with specific legal protections. Depositors and investors in any crypto exchanges have no regulations or laws to protect them as it is an unregulated industry. FTX can flip them the bird in chapter 7 and the depositors would have no way to get their money back. Things like the FDIC exist for a reason.
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