When a company cannot pay what it owes, it can end up in a formal insolvency or bankruptcy process. For shareholders this is one of the most serious events a listed company can face, yet the words are often misunderstood: insolvency does not always mean a company shuts down, and delisting is not the same thing. This article explains how insolvency works in India and the US, what usually happens to shareholders, the warning signs that often come first, and what PositoAI's own records show.
What insolvency means
A company is insolvent when it cannot pay its debts as they fall due, or when it owes more than it owns. Insolvency becomes a legal process when a lender, a supplier or the company itself goes to a court or tribunal. The process decides whether the business can be rescued, usually by a new owner or a deal with lenders, or whether its assets are sold and the company is closed.
"Bankruptcy" is the word more often used in the US; India's law uses "insolvency". Both describe the same basic situation.
How it works in India
India's Insolvency and Bankruptcy Code (IBC), in force since 2016, sets out a time-bound process:
Admission: a creditor or the company applies to the National Company Law Tribunal (NCLT) after a default, currently of at least ₹1 crore. If the tribunal admits the case, the formal process begins.
Moratorium and new control: legal actions against the company pause, and an insolvency professional takes over running it in place of the board.
Committee of creditors: the lenders review offers from buyers and vote on a resolution plan.
Outcome: the process is meant to finish within 180 days, extendable to 330 days including legal delays. If no plan is approved, the company goes into liquidation: its assets are sold and the money is shared out in a fixed order.
How it works in the US
Chapter 11: the company keeps operating while it reorganises its debts under court supervision. Many well-known companies have come out of Chapter 11 and kept trading.
Chapter 7: the company stops trading and a trustee sells its assets to repay creditors.
Receivership: a court-appointed receiver takes control of some or all of the assets, often for a particular lender.
US companies must report a bankruptcy or receivership in a public filing (a Form 8-K) within a few business days.
What happens to shareholders
When assets are shared out, shareholders come last: after secured lenders, employees' dues, other creditors and bondholders. In many cases there is little or nothing left for them. Even when a business is rescued, the plan often cancels or sharply reduces existing shares, and the company may be delisted. Share prices usually fall long before a case is admitted, as the market sees the trouble coming.
Example on PositoAI: current cases in India
On 20 Oct 2026, 16 Indian companies on PositoAI carried an insolvency marker: 2 listed as under the insolvency resolution process, and 14 with insolvency proceedings identified from their own disclosures, which can also mean a creditor's petition not yet decided or a case involving a subsidiary. Six were consumer businesses, three industrial and two real estate companies.
Ten of the 16 traded more than 50% below their 52-week high, several more than 80% below. But a few traded close to their highs, a reminder that an insolvency marker covers very different situations and is worth reading in detail. (As on 20 Oct 2026; the date shown on PositoAI is when it first recorded the marker, not when the case began.)
Warning signs that often come first
Owing more than it owns: an Owes vs Owns figure near or above 1×.
Profit not covering interest: interest cover below 1× for more than a year.
Cash running short: yearly cash from operations unable to meet debt due within a year.
Missed payments and downgrades: delays on loans or bonds, and falls in credit ratings.
Governance strains: auditors resigning, results filed late, promoters pledging most of their shares.
None of these means insolvency will follow, but several together deserve close attention.
Insolvency is not delisting
Companies are delisted for many reasons: a promoter buying out public shareholders, a merger, or an exchange removing a company for breaking its rules. Exchanges also issue warnings first, such as trading suspensions in India or notices that a US company no longer meets a listing rule, for example a share price below $1. Many companies fix these and stay listed.
Example on PositoAI: the US, and listing warnings
In the US, 5 companies on PositoAI had reported a bankruptcy or receivership in a company filing, including Office Properties Income Trust, first recorded on 31 Oct 2025. Listing warnings are far more common than insolvency: 614 US companies had reported an exchange notice of not meeting a continued-listing rule, and trading in 5 Indian companies was suspended on the exchange. (As on 20 Oct 2026.)
Common misconceptions
"Insolvency means the company closes." Many companies are rescued through a resolution plan or Chapter 11, though shareholders often lose most of their stake.
"A cheap share in an insolvent company is a bargain." The low price usually reflects that shareholders may receive little or nothing.
"Every listing warning leads to delisting." Most warnings are about fixable issues, such as late filings or a low share price.
Frequently asked questions
Can I still trade shares of a company in insolvency?
Often yes, unless trading is suspended, but prices can be very volatile and the outcome for shareholders uncertain.
Who gets paid first?
Secured lenders and insolvency costs come first, then workers and other creditors; shareholders come last.
How long does an Indian insolvency case take?
The law sets 180 days, extendable to 330 including legal delays, though many cases have taken longer.
What is the difference between Chapter 11 and Chapter 7?
Chapter 11 is reorganisation with the business still running; Chapter 7 is liquidation.
How to use this on PositoAI
The Insolvency & Bankruptcy page lists companies with an insolvency or bankruptcy marker, current and past, by country, and the Delisting warnings page lists trading suspensions and listing-rule notices. Each case is also a red flag on the company's page, gathered in PosiRed. Each company's PosiFunda page shows Owes vs Owns, interest cover and the Debt Due Cover Ratio. PosiStep 12 of PosiCourse, PositoAI's free stock market course, explains the balance sheet.
Suggested reading
How to Understand Company Debt · How to Check a Company's Regulatory Issues · What Is the SEC and a 10-K? · What is SEBI? · What is a Bond?
Summary
Insolvency is a legal process for a company that cannot pay its debts. In India it runs under the IBC through the NCLT, aiming for a resolution plan within 180 to 330 days or else liquidation; in the US, Chapter 11 reorganises and Chapter 7 liquidates. Shareholders come last and often lose most of their stake. Warning signs such as owing more than it owns, profit not covering interest and short cash often come first. Delisting is a separate matter, and most listing warnings are resolved.