Investor Education: Essential Information About Bankruptcy Filings And GT Advanced Technology

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Source: GT Advanced Technologies

Bankruptcy. Companies that are not profitable and can no longer continue its business or those taking on too much debt tend to declare bankruptcy. In such an event, it either files for Chapter 11 or Chapter 7.

The process. A bankruptcy judge will appoint a committee of creditors and bondholders to determine the best course of actions. After determining the right chapter to file and laid out their comeback plans, they have to get the approval of a bankruptcy judge. That said, let's examine what Chapter 11 and Chapter 7 entails.

Chapter 11. The company reorganized its business, for instance to sell unprofitable divisions, so that it can become profitable again. The perk of filing for Chapter 11 is that creditors can no longer go after the company. Meanwhile, the company is not closing down the shop: Business will be ongoing as usual. The catch is that a bankruptcy judge has to approve all major business decisions, which can limit the freedom for a company. Nonetheless, that might be what's needed to keep the management disciplined.

Chapter 7. If it is unlikely that the company will become profitable in the future, Chapter 7 might be the proper decision. In such an event, a company sells all of its assets—buildings, equipment, warehouse and etcetera—to get as much money as it could to repay any loans.

Trading and New Stocks. Bankruptcy filing does not stop the stocks from being traded. Usually, when a company went bankrupt, its stock is removed from the main market (NASDAQ, NYSE); however, its stocks continue to trade. Now, the next part is quite tricky. The company can then decide to either list the new shares right away or not.

If it does, the new stock symbol will be same as the old one, but with the letter Q at then end; and it will trade in the OTCBB market (i.e. the "Pink Sheet"). For example, GT Advanced Technology (NASDAQ: GTAT) changed to (OTCBB: GTATQ).

For companies not issuing new stocks right away, the letter V will be added at the end of the usual tickers when they decided to list their stocks. 

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