Why do some corporations go bankrupt, declare stock worthless?
While others start over again, and give previous stockholders a stake in the new company?
Shouldn't it be the same proceedure for all corporations?
Examples:
L.A. Gear sued over contaminating waste sites with old shoes containing mercury (lighted kid's shoes). Stock worthless.
New company:Sketchers.
Trump stock went through bankruptcy, issued new stock which also is a loser.
Phillip Morris was on the skids ten years ago, overwhelmed with tobacco lawsuits.
They raised cigarette prices, and now look at the results...
Stock went up six times what it was, changed name to Altria, in process of spinning off divisions.
Best Answer - Chosen by Asker
The easy answer is that sometimes the debt ratio is just too high to remain in business. The creditors and/or employee unions refuse the offers to settle, and leave the company no choice except to totally dissolve.
When a company enters bankruptcy organization, the creditors and the employee unions (if any) have to approve settlement deals in order for the company to keep the doors open. And some people decide that 100% of nothing is better than 10% of something.
In other cases, the creditors, vendors & unions see a bigger picture and realize allowing the company to stay open is more important that a few extra dollars in payouts. What you don't gain in the settlement can be made up in the future.
Now maybe a great time to stop smoking if you've been wanting to kick the habit as cigarette prices are on the way up.
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