ASAIK, based on text from Thomas and Eric at Adobe, if one (perhaps two?) channels are clipped, they can reconstruct them from the remaining data.
we were talking about the case when everything is clipped - then no details can be invented ("reconstructed"... one can understand how data is reconstructed in case of ECC codes - because it was not actually lost) but raw converter can keep the area nicely white (invent the color to fill - no details) for a pleasant visual look
for Bernie's benefit some quotes from EChan
"the DNG processing model performs a linearization of the original raw image values followed by demosaicing, then white balance. All of the other image stages follow. So to answer your question, all of the image ops except for linearization (which isn't under user control anyways) happens after demosaicing. "
"In the minus direction, the only difference is that
ACR tries to keep clipped whites white (i.e., we did not feel it was photographically useful to let speculars turn into gray blobs, though we still let users accomplish that with the point curve). Remember, when reducing (software) Exposure, there's nothing "above" the sensor saturation point (very unlike at capture time, where reducing the capture exposure can indeed record additional information), so there is a question of how to treat the whites."