Far East Energy Corp. (fka FEECQ)

[LouisDesyjr]

A general overview of the bankruptcy process

Part one of two parts

I will explain in a simple form, how a chapter 7 bankruptcy works for a public company.

Source for explanation:
SEC - What every investors should know about bankruptcy

When the bankruptcy is filed, at that instant of the filing, a bankruptcy estate is created. All of the company assets and liabilities are collected and totaled. A trustee is assigned to the case that has control over the estate, with the oversight of the court.

Then the liabilities are separated into classes and an order of priority established.

Liabilities, order of priority, highest to lowest priority:

1: Secured debts against the assets the debt is secured by.
2: Bonds.
3: Unsecured liabilities, usually vendors
4: Preferred Shares
5: Common shares.

Then the assets are distributed to the classes, in order of priority. Common shares will only have any value or rights only after all other liabilities are paid off, usually in full.

Here the company is being liquidated, so the common shares will only get a liquidation dividend only if all other liabilities are paid off in full.


Louis J. Desy Jr.