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When are stockholders paid during a business bankruptcy?

On Behalf of | Jan 7, 2016 | Business & Commercial Bankruptcy |

When a company suffers financial setbacks it is often unable to pay bills and other financial obligations. New York businesses that sell and offer stock often have monetary responsibilities to those parties that purchase shares in their organizations. When a business starts to take a downward financial turn and chooses to file for business bankruptcy in order to address its problems, its shareholders may wonder if and when they will receive recompense for their investments.

According to the United States Securities and Exchange Commission, stockholders in corporate entities are often the last ones to be paid in bankruptcy, if there is anything left with which to pay them. First, any party holding a priority debt, such as a bank holding a secured loan, will be paid from funds derived through a Chapter 7 liquidation or Chapter 11 reorganization. Second, unsecured debts and the creditors holding them will receive payments once the secured debts are handled.

Only after secured and unsecured debts are satisfied will stockholders, who are considered owners of a company, get paid. In many situations stockholders do not receive any compensation during a business bankruptcy because all of the entity’s derived funds were used to resolve its secured and unsecured debts.

However, our readers should note that every business bankruptcy is different and that stockholders may have different experiences based on the scenarios of their entities’ financial histories. However, as owners in a struggling company, stockholders are generally given the least priority in terms of recovering financial investments in businesses that ultimately have to file for bankruptcy.

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