Question

Marcus owns common stock in XO, an oil and energy company that is about to be liquidated. Is Marcus guaranteed to be paid in the process of dissolution?

Answer 1

Answer:

No

Explanation:

As a common stock holder, Marcus falls among the last class of stakeholders to be settled in XO's dissolution. A typical hierarchy of settlement during company dissolution is

• Secured creditors
• Unsecured creditors
• Preference stock holder
• Common stock holder

As such, as a common stock holder, Marcus will only be paid after all creditors and preference stock holders have been paid. And given that companies in liquidation are in that situation in the first place due to their inability to meet their obligations, there may not be enough resources left for common stockholders after distribution to creditors and preference stock holders.