the money has to come from somewhere... either the money was in the company, in which case it was drastically undervalued, or it comes from creditors, in which case if they want to lose their money it's their problem
Or, a loan was taken - repayment of which is supposed to take precedence over dividend distribution and dealing with related entity. And some apparently legal accounting tricks allow the loan repayment to lose its precedence, and when time comes to repay, suddenly there is no money.
It is indeed the creditors money that is lost. And AFAIK it is legal. I just wonder why it’s legal.
Much like in the subprime crisis, the original creditor knows quite well the likelihood of recovering the loan is low, but they sell it to a dumber creditor (often pension funds) who does not.
Unlike toysrus and hostess, the subprime thing included a huge mount of illegal things by many of the parties, but still hardly any enforcement - so I guess it doesn’t matter all that much if it’s legal or not.
