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With ongoing volatility in global markets and levels of distressed debt at an all-time high, we will inevitably see a surge in bankruptcies in the coming months and years. The business uncertainty caused by a prolonged downturn may also expose or lead to an increase in fraudulent behavior as, under increasing pressure to hit earnings targets, management resort to improper means to replace lost revenue in the marketplace.
For investors who have suffered losses caused by securities fraud, recovering any value from an insolvent company can be challenging in some jurisdictions such as the United States, where securities fraud claims ordinarily stand last in line for payment from a bankruptcy estate. However, shareholders should not assume that they will be unable to recover any of their losses from a bankrupt issuer: There may be various routes to recovery in the United States and particularly in jurisdictions outside of the US that provide better treatment to defrauded investors.
