If you have shares of Jaiprakash Associates Limited, a well-known company in the infra sector, then this news is very important for you. After the ongoing bankruptcy process in the National Company Law Tribunal i.e. NCLT, now the decision has been taken to delist the shares of JAL from the stock markets (BSE and NSE).
After this announcement, there has been a stir among thousands of retail investors (domestic small shareholders) who were holding shares of the company in the hope that perhaps the situation of the company would improve in the coming days. Now the biggest question arises that what will happen to the money of these retail investors after the name of Jaiprakash Associates Limited is removed from the stock market? Will their hard-earned money be completely lost or is there still some way for recovery?
Why is the company being delisted?
Jaiprakash Associates Limited was struggling with heavy debt and financial crisis for a long time. Resolution process was initiated against the company under the Bankruptcy Act due to non-payment of dues by the lenders. When a company is declared bankrupt and the process of liquidation (sale) of its assets or takeover by another company begins, public trading of its shares is stopped as per the rules. For this reason, Jaiprakash Associates Limited is being permanently delisted from the stock exchanges.
What will happen to retail investors after delisting?
According to the BS report, once a bankrupt company is officially delisted from the stock exchange, retail investors are faced with a variety of situations. The first shock is that you will not be able to sell these shares from your demat account like normal days because there will be no buyer for them in the market. Your shares will continue to be visible in your demat account, but their value will appear ‘nil’ or zero. In technical language, these are called ‘frozen or unlisted’ shares.
Will retail investors get their money back?
Under the Insolvency Bankruptcy Code, when the assets of a company are sold or reorganized, a strict rule (Waterfall Mechanism) has been set for the return of money. Let us also tell you what those rules are…
- First they get the money: the expenses of the bankruptcy process, secured creditors (financial creditors like government and private banks), and the outstanding salaries of the employees.
- Then comes their number: Unsecured Creditors and Government taxes etc.
- Retail investors last: Company owners and retail investors (Equity Shareholders) come last in this list.
According to experts, the company owes thousands of crores of rupees to banks and financial institutions, hence the money received from the sale of assets will first be used to repay the loans of the banks. By law, until every penny of the secured creditors is repaid, the equity shareholders do not get anything. In such cases, retail investors are generally left empty handed.
What is the biggest lesson for investors?
Market experts say that the case of Jaiprakash Associates is a big warning for those investors who place bets in the shares of bankrupt or highly indebted companies at very low prices. After delisting of the company, the hopes of recovery of money for retail investors are negligible. It is very important to understand the risk of ‘total loss’ hidden behind ‘high risk’ in the stock market, so that such wealth destruction (destruction of capital) can be avoided in future.
Leave a Reply