In all instances the Secured Creditors want as much dollar value as they can get, and BK Judges are compelled to grant them as much security as necessary for the reorganized loans. The common share equity prior to BK is considered burdensome to the reorganization because Secured Creditors will not approve the PLAN if the pre-BK share equity survives, unless the chaptered company has enough tangible assets to securitize their loans. New share equity to guarantee the reorganized loans would be subordinate to the pre-BK share equity so the pre-BK share equity is cancelled.
Whenever there is a well-represented Shareholder Equity Committee the Secured Creditors may be more conciliatory to letting a small percentage of the pre-BK equity to survive just to get the PLAN approved by all parties, but those instances are rare because the secured debts usually exceed the entire value of the chaptered company, keeping in mind that all tangible assets lose immense value the instant a company files for BK protection.
Secured Creditors are the drivers of a Chapter 11 reorganization, and if / when they don't get what they want they can ask for the Chapter 11 reorganization to be changed to a Chapter 7 liquidation.....they have power that is superior to the combined interests of the company, unsecured creditors, and all classes of shares.
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