Protection of Creditors

Creditors, though, are not regarded as the members of a company, yet the role they play in maintaining a company cannot be denied. They are the sole functionaries of the company, in one word. They provide credit to the company for running its business, as without finance a company holds no position to carry on its business for which it came into existence. By virtue of lending money by the creditors to the company, the company becomes debtor to the creditor and hence is under an obligation to take proper care of the interest of the creditors. Previously, there were no such enactments that provide relief to the creditors whose money is being involved in a company that fails. However, many a times it has been seen that the company after taking money from the creditors, vanished away without returning the due money to the creditor. Such activities render loss to the creditor. In order to curb such activities as well as to protect the rights of the creditors, there are many legislations that have been enacted by the Government. Through these legislations, it has become possible for the creditors to claim their money back from the company. Thus, in the present time, a company that is unable to repay back the due amount to the creditors, cannot take the excuse of being insolvent. In this paper we shall discuss the various ways by which protection is afforded to the creditors in a company and also look upon the various provisions that help the creditors in realising their credit.