Does Corporate Bankruptcy Protect Individual Investors?
Shareholders do not need bankruptcy protection for a fresh start. To illustrate, imagine a corporation that begins its existence with $100,000 in equity capital contributed by shareholders and $50,000 in proceeds from creditors’ loans. Assume that the corporation later suffers misfortune and is left with $25,000 in assets subject to the same $50,000 debt, on which it defaults without repaying. If there were no bankruptcy “protection,” the creditors would collect all $25,000 of the corporation’s assets. With nothing left, the corporation would be an empty shell that some would describe as dead. While the shareholders may experience a financial loss form the corporate debtor’s demise, they would receive a fresh start without corporate bankruptcy. If empty shell that some would describe as dead. While the shareholders may experience a financial loss from the corporate debtor’s demise, they would receive a fresh start without corporate bankruptcy. The individual shareholders receive protec
