What Happens to Retail Shares if a company Goes Bankrupt in India?

‘Bankruptcy’ generally occurs when a company’s debt is greater than it’s assets. We all know that the value of the shareholders’ investments is (in general) assets minus liabilities, if liabilities are greater than assets, the shareholders have no remaining value.

Read – How Do I Know if I Should Buy, Sell or Hold Stocks ?

In such cases the stock becomes worthless and you can’t sell it also. There is a very slim chances of left over money after selling assets. Under bankruptcy a firm is required to sell all of it’s assets and pay off all debts in the set order like

Government→Financial Institutions→Other Creditors→Suppliers and Utility Companies→ Bond Holders and Preferred share holders→ Retails Investor

If a company goes bankrupt in India, as per law, it has obviously filed for insolvency resolution process. When the insolvency resolution proceedings end up reaching a conclusion, the assets of the bankrupt company shall be sold and the profits are paid to its creditors.

Read – How To Calculate Tax on Share & Stocks Income ?

As shareholders, you need to wait for the end of the profit distribution. If something is left, you are going to get some value from it. Most time common holders receive ‘0′ there is nothing left after all other is paid.

Generally, Retail Investors lose all their money and there is no protection.


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