Bankruptcy Act

The waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016 determines the order in which money from the liquidation of a corporate debtor is distributed among stakeholders. Insolvency and liquidation costs receive priority, followed by specified categories such as secured creditors who relinquish security, workmen, employees, unsecured financial creditors, government dues and remaining secured debt, other creditors, preference shareholders, and finally equity shareholders or partners. Understanding this priority order helps creditors assess their likely recovery when a company enters liquidation.