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Forcing startups into bankruptcy using convertible note?

In the case the principal and/or interest becomes due, and the startup can’t pay, the note investor usually converts to equity. Alternatively, can he force the company into default if he refuses convert? - effectively taking control of the assets / IPs?

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I’m sure there are legal clauses that protect the companies from this sort of activity. 

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bankruptcy lawyer. lol

I love my cheese. I got to have my cheddar.

convertibles usually have less power in terms of forcing companies into bankruptcy than traditional bonds. often convertible notes are more like equity already, convertible to equity at crappy conversion rates. i’ve seen a few times, just before a reorg, where convertible bonds will trade at 5 cents on the dollar while senior debt trades at 90 cents on the dollar as the convertible debt is converted into equity THEN reorg’d as per the senior bond takeover of the company. convertible debt is a crappy asset class. it works fine during a bull market but full cycle, beware, and read your prospectuses very carefully.

^o lol. thats shady! i never thought of how they can force those conversions on you.

I love my cheese. I got to have my cheddar.

Interesting - how does it have less power than a traditional bond? How would the language in the contract differ?

typically it is unsecured/subordinated debt versus secured/unsubordinated senior debt. unsecured convertible debt is often introduced as first lien but then eventually takes a back seat to senior secured debt when senior secured debt is issued.

every situation will be different but seniority for each company is usually very clear.