Finance Q&A

Should Corporate Bankruptcy Law Be Changed?

Q. Specifically, should shareholders be left holding the bag in a corporate bankruptcy filing, as it appears Worldcom's current shareholders will be. That company's current bondholders want to take "possession" of what the current shareholder's have now. Any long-term observer of the market, in this newsgroup, cannot deny what will occur shortly - a pre-packaged bankruptcy filing, a "Thanks for the Memories" ballad, sung in unison by the current bondholding group to the current shareholders, around a bonfire of "old" equity paper and a reissuance of new stock in exchange for current debt. Does the law need changing, to accord with current notions of equity - in the moral sense? Bankrolling a corporation requires large amounts of capital. The bond investor can't do it alone. When the going gets tough, why should the equity investor get "rolled" like a drunk lying in the gutter?

A. That (excuse me I think you meant) CREDITORS come first under the current system is indubitable. What Steve was partly saying and I emphasized is that the bankruptcy system in recent years has been "played" by criminal lenders so as to loot companies of the stockholder assets and then to transfer all of the physical assets to the criminal lenders who hold what are made to *appear* as creditor status. Insiders are bribed with absurdly large salaries all during the process of theft of stockholders equity. Then that which was bought with stockholder money is run through the bankruptcy courts so as to transfer title over to the criminal lender(s) who rigged the deal against cash paid public stockholders. How it "should be" done is to recognize criminal conspiracy in the increasingly large number of instances where it not only exists but is the primary feature of the intentional bankrupting of the company. The current law places an unreasonably short time limit on "payments made in contemplation of bankruptcy". Current law fails to distinguish the criminal purpose of many of the "loans" being made to corporations so as to create "creditor" status for "lenders" who are really nothing but criminal looters of corporate assets. Whether our current criminally corrupt nonelected legis critters have any possibility of ever addressing these issues is doubtful, but nonetheless Steve's point is valid. Corporate bankruptcy laws *should* be changed to address the increasing prevalence of criminal conspiracy of managements and lenders against cash paid public stockholders.

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