Equity is the definition of ownership, so yes, shareholders owe the debt, and by voting for bankruptcy they agree the entire company should be liquidated to pay the creditors, so the shareholders, who OWN the company, can walk away from that debt scott-free.
It's not the shareholders who get screwed here, it's the creditors. The shareholders (OWNERS) chose this route, asked for it, and merely got what they asked the Court to do.
The Judge didn't rule against anyone, since in bankruptcy cases, the Judge doesn't rule or make a "decision," the two sides in the case do (owners and creditors). Under Chapter 11, they can strike a deal or not. If yea, the company is spared, if nay, the company is automatically liquidated under Chapter 7.
There's no such thing as a Chapter 7 vote or decision by a Judge. It's an automatic part of the Chapter 11 process, the next step if no reorganization plan is accepted by the creditors.
It's automatic, the Judge didn't "decide" to do it, they don't have to. Chapter 7 is 100% automatic when reorganization fails.
In corporate bankruptcy, shareholders screw the creditors. They choose to. The shareholders borrowed the money from the creditors, spent it, didn't pay it back, then petitioned the Court for "debt forgiveness." That leaves the creditors high and dry. The shareholders decided giving up their share of the company was a fair trade to not pay the bills.
Shareholders are not the last ones to get paid in the process, they are NOT in the process, they ARE the owners who are the ones liquidating everything, including their own shares. The "preferred shareholders, then common shareholders" applies to dividends, neither has any standing in a bankruptcy case.
Hope this helps you with the U.S. Bankruptcy Code process. Been there, done it.
Happy trading!
