In business bankruptcy cases, the last to get paid are the owners. For a business, the “owners” are the members, shareholders, or partners. This rule, known as the “absolute priority rule,” also applies outside of bankruptcy: a company has to pay its bills before it can pay its owners. In a business Chapter 11 case, this means that the owners get to keep their shares only if the plan also provides for full payment to all of the business’s creditors.
In business cases, the only exception to this rule is a consensual plan, in which the affected creditors agree to the plan. Creditors may agree to such plans, and frequently do so when they are offered a substantial payout and a significant improvement over what they would receive in a liquidation.
If you are considering requesting Chapter 11 bankruptcy protection, you should consult with an attorney familiar with Chapter 11 bankruptcies to discuss your options. For a free consultation, call (480) 719-1152.