If a company declares bankruptcy it doesn't necessarily cease operating, in the US it could continue operating under Chapter 11. Ownership would then go to the creditors of Twitter. But who are those?

There are currently some news articles that banks involved in Musks Twitter take-over are trying to sell the debt at 30 to 40% below nominal value but I'm not sure whether the debtor in this case is Musk himself or the company Twitter?

I thought a bankruptcy would entail Musk losing control of Twitter making this a very unattractive option to him but if he gets to keep Twitter through such a reorganisation this changes things dramatically for him.

  • The fact that the banks sell the dept below value doesn't reduce the dept Musk has. He still owns the banks $55Billion.
    – PMF
    Nov 12, 2022 at 7:52
  • @PMF True, but the question remains whether this debt is towards Musk or Twitter. If the debtor is Twitter it would loose a lot of value in a bankruptcy of Twitter, if Musk is the debtor it wouldn't.
    – quarague
    Nov 12, 2022 at 8:18
  • @quarague I'm not an expert on american company law, but Twitter Inc is still a corporation issuing shares. Twitter owns money to the shareholders. Musk is holding the vast majority of the shares, but he bought them with money from banks.
    – PMF
    Nov 12, 2022 at 9:31
  • I thought Musk bought the company by paying money to the previous share holders, with most of the money coming out of his own pocket and some from bank loans. But no matter what, the money is now in the pockets of people who have nothing to do with Twitter anymore.
    – gnasher729
    Nov 13, 2022 at 15:57
  • The purchase price was about $44bn, not $55bn.
    – gnasher729
    Nov 13, 2022 at 15:59

2 Answers 2


If Twitter were to declare bankruptcy would Elon Musk retain control/ ownership afterwards?

Basically yes.

Without getting into the specifics of the transaction discussed, in the U.S., when a company files a Chapter 11 bankruptcy petition:

  1. The company is managed by the "debtor-in-possession" (i.e. existing management) unless and until the bankruptcy court removes them from control.

Removing the debtor-in-possession from control of the company is the rare exception, unless the case is converted from a Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation bankruptcy, in which case a third-party trustee appointed by the court is placed in control of the bankruptcy estate. Bankruptcies that convert from Chapter 11 to Chapter 7 (half joking referred to by insiders as "Chapter 18 bankruptcies") are fairly common, usually because no viable plan to continue the business can be devised and approved.

Most often these conversions happen when a small or medium sized bankrupt firm's tax debts overwhelm all other creditor's claims, when a retail business can't meet the bankruptcy code requirements to keep its leases in force, or in cases of single asset real estate bankruptcies in connection with bank loan foreclosures that can't find a way to refinance the loan in time to avoid the foreclosure.

  1. Ownership does not change unless a bankruptcy reorganization plan provides otherwise. But, the law regarding bankruptcy reorganization plans requires that pre-petition equity holders receive nothing for their existing ownership interests unless all creditors are paid in full or consent to impaired treatment. This is called the "absolute priority" rule.

As a practical matter, in a plan where some creditors get less than the full value of their claim and do not consent, they can veto the plan given an ownership interest on account of pre-petition ownership. Usually, if the pre-petition owners want to get a post-reorganization ownership interest in the company, they do so by injecting new post-petition money into the reorganized company.

The vast majority of the time, all pre-petition equity in the bankrupt company is cancelled sooner or later.

But sometimes, when a Chapter 11 bankruptcy is filed to deal with a single major debt like a huge money judgment in a court case that can be appealed but which the bankruptcy debtor doesn't have the funds to bond around outside of bankruptcy to prevent collection actions, if the source of the primary debt triggering the case can be resolved, the pre-bankruptcy owner of the company will retain ownership.


Bankruptcy does not change the owners of a company

The shareholders (owners) do not lose ownership in bankruptcy; just control.

The creditors appoint a trustee to manage the company and, if and when the company returns to profitability, control is restored to the owners through the board of directors.

Musk's takeover did not change Twitter's balance sheet

The money paid by the Musk consortium did not go to Twitter, it went to the former owners of Twitter. The impact on Twitter of the transaction was precisely zero - any impact will come about subsequently by a change in management direction.

Who owns Musk's debt does not affect Musk or Twitter

So Mr Musk borrowed some money from Bank A and has contractual obligations on when and how much he has to repay. So long as he meets those obligations, nothing changes from his perspective.

If Bank A seels that debt to Bank B (at a profit or a loss), that does not affect Mr Musk. It certainly doesn't affect Twitter.

  • I think this is significantly wrong. Banks gave 13bn dollars in loans to twitter. Not to Musk, and Twitter had 4bn debt before. If they can’t pay the interest the shareholders would have to inject money into Twitter or risk losing ownership. And eventually there comes the day when Twitter has to repay the loans.
    – gnasher729
    Nov 16, 2022 at 8:17

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