Stock investors are lately demanding — and winning — the chance to fight for a recovery in bankruptcy, according to an analysis in today’s Wall Street Journal. In chapter 11 bankruptcy reorganizations, shareholders don’t get paid unless companies pay off all their debts, which typically means they don’t get paid. Rather than accept defeat, however, shareholders in energy, coal and other commodities-focused companies are fighting for a voice, and possibly a recovery, in some of the biggest bankruptcies that have been filed over the past couple of years. “Equity is just not as willing to walk away as they once were,” said DLA Piper restructuring lawyer Thomas Califano. In most of these cases, shareholders are wiped out as companies reorganize by giving equity to creditors or selling their assets at prices too low to cover their debts. “You just feel exploited when your life savings are about to be taken from you,” said Kristen Plaisance, who owns stock in bankrupt Texas oil and gas driller Energy XXI Ltd. Energy XXI’s shareholders allege in bankruptcy court filings that management wrongly marked down the value of the company before planning a restructuring that would hand control of the company to bondholders while letting current management keep their jobs and collect bonuses. In June, Bankruptcy Judge Marvin Isgur granted Energy XXI investors an official committee.
