When a company declares bankruptcy, it usually files Chapter 11 bankruptcy. The main reason is if it files Chapter 11 bankruptcy, it is in a position to continue its operations. This wouldn’t have been possible in case of Chapter 7 bankruptcy in which the assets of the company are sold off to pay creditors. In Chapter 11 bankruptcy, the company tries to “reorganize” its business operation so that it is in a position to earn profits again. Although the operations continue but the major decisions are usually taken by the bankruptcy court.

Publicly-held companies usually file Chapter 11 bankruptcy because the company operations can be managed and simultaneously the bankruptcy process can also be controlled. While the company files bankruptcy, the stocks and bonds of the company continue to trade. As such the company filing bankruptcy is required to inform the SEC or the U.S. Securities and Exchange Commission about all developments taking place in the company.

Stocks trade on Pink sheets or OTCBB

There is no federal law that can prevent companies from trading their securities even if they file bankruptcy. When a company declares bankruptcy, it fails to meet the “listing standards” that are required if the stocks are to trade on the New York Stock Exchange (NYSE) or NASDAQ. However, shares can continue trading on the Over-The-Counter Bulletin Board (OTCBB) or Pink sheets.

There are 2 different types of stocks that a company may offer. The first set of stocks are those that the company issues before filing bankruptcy and the other set of stocks are those that the company issues or authorizes after it emerges from filing bankruptcy.

What are the ticker symbols that differentiate the 2 sets of stock?

In case of the old stocks that trade on Pink sheets or OTCBB, the ticker symbol consisting of 5 letters will have a “Q” at the end. This signifies that the stocks were involved when the company filed bankruptcy.

On the other hand if the new set of stocks trades the ticker symbol will have a “V” at the end. This is because under certain conditions companies don’t issue stocks although the company authorizes them. The “V” symbol usually gets removed once the company issues them.

Making investment in company stocks filing bankruptcy

It is important to assess the ROI or the return on investment in case you are planning to invest in stocks of a company that has filed Chapter 11 bankruptcy. If you intend to invest in common stocks, you stand a good chance of losing all your cash. The main reason is when a company files bankruptcy; the secured creditors receive their money first followed by the unsecured creditors. The common stock holders are the last to receive their money as they own a part of the company.

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