How is dilution done in case of bankruptcy?



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How is dilution done in case of bankruptcy?

1 Answer(s)


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During bankruptcy proceedings -

1. first the company assets are sold off to the highest bidder and the proceeds are used to repay the lenders (starting from the most senior lenders like banks)

2. Then whatever remaining money will go to the shareholders.

3. Manytimes, the lenders will write-off their debt for a significant equity stake in the company. This will severely dilute the promoters.