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When shareholders and debt investors are worlds apart

Shareholders are a company’s residual claimants – if a company is a cake, shareholders get the last slice after everyone else takes theirs. When a company goes bankrupt, there are no more leftovers, and, therefore, our bankruptcy laws generally wipe out shareholders.

Can companies that are in trouble, but perhaps not quite beyond repair, restructure even when there’s still some value left over for equity? Arcan Resources Ltd. thinks that it can do so through a plan of arrangement. However, the plan requires building a consensus between debt and equity holders, a difficult task. And, if the plan does work, it exposes a procedural flaw in the plan of arrangement process.