Liquidation
The winding up of a company, in which assets are sold and proceeds distributed to claimants in a legal order of priority.
Formula
Waterfall: liquidation costs, then secured creditors and workmen's dues, then employees, then unsecured creditors, then government dues, then preference shareholders, then equity
Unit
₹ crore
In depth
The waterfall is the whole story for an investor: equity ranks last and receives only what remains after every other claim is settled in full, which in most liquidations is nothing. This is the concrete meaning of equity being a residual claim, and it is why a company in liquidation typically leaves shareholders with zero rather than with a reduced amount. Recovery rates under India's Insolvency and Bankruptcy Code have been low for liquidation cases and better for resolutions where the business continues. A stock still trading during insolvency proceedings is trading on the possibility of a resolution, not on asset value.
Worked example
A liquidation realises ₹500 crore against secured claims of ₹400 crore, unsecured claims of ₹200 crore and ₹60 crore of costs. Secured creditors take ₹400 crore, ₹40 crore remains for unsecured claims, and equity receives nothing.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Liquidation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.