Hercules Offshore Inc.'s plan to liquidate came under attack from a federal bankruptcy watchdog and from shareholders that have been counting on a turnaround for the oil drilling operation.

Unhappy shareholders include Centerbridge Partners LP, which has continued to buy Hercules Offshore's shares in the open market, while battling the company's proposed prepackaged bankruptcy liquidation plan.

Centerbridge, a $25 billion private-equity and distressed debt investor, put Hercules under pressure early in its bankruptcy, which began in June with the announcement that the company is taking a sensible way out—-liquidation—-of the tough market for energy industry service companies.

A tally of votes reveals more than half the shareholders that cast ballots said "no" to Hercules Offshore's plan. The rejection will force an open-court contest over a plan that Hercules Equipment insists is the best it can do in a rough energy market. Shareholders say Hercules's plan is designed to give lenders a "massive windfall."

A spokesman for the Houston company didn't immediately respond to a request to comment on multiple critiques of its chapter 11 plan. Instead of reorganizing, Hercules proposes to shut down operations and sell its offshore oil drilling equipment, paying creditors and leaving something for shareholders.

The offer doesn't sit well with shareholders, many of them investors that followed Hercules Offshore out of a recent bankruptcy case and were counting on a turnaround when oil prices rebounded.

Less than eight months after emerging from a chapter 11 balance sheet reshaping, Hercules was back in bankruptcy, complaining that conditions were tougher than it realized.

Shareholders immediately challenged the assertion, insisting they knew 2016 was going to be rough, and were prepared to wait for a return to profits. In court hearings, lawyers for shareholders raised suspicions about dealings involving Hercules's top-ranking lenders in the months before the company's return to bankruptcy.

For example, Hercules gave lenders back $200 million they had pledged for the completion of a new state-of-the-art rig, the Highlander, which was one of the central selling points of last year's bankruptcy restructuring.

Instead of finishing the construction, however, Hercules handed the Highlander over to a subsidiary of Maersk Drilling, calling the handoff a win because it relieved the company of the obligation to finish the Highlander and put it to work. Shareholders called for an investigation, and on Wednesday termed the return of $200 million "coerced."

Results of their investigation and other grounds for protest are under wraps in bankruptcy court documents. Hercules, its lenders and the official shareholders committee agreed to cloak any material other parties deemed confidential.

That leaves shareholders of the public company in the dark about what the official committee that represents them found out about Hercules Offshore's prebankruptcy deliberations.

Court filings show shareholders have called into question the purported defaults on senior loans that pushed Hercules back into bankruptcy. The events, such as a week's delay in delivering to lenders the registration documents for a vessel in Nigeria, aren't sufficient grounds for blowing up a major loan, shareholders have suggested.

Lenders are seeking to collect $579 million under the chapter 11 plan, a figure that apparently includes a loan premium of about $136 million. Shareholders say the premium payment claim is hooked to the allegedly defective defaults, and should not be allowed.

U.S. Trustee Andrew Vara, an officer of the Justice Department responsible for overseeing bankruptcy matters, criticized Hercules Offshore for depriving creditors of required information and protection.

Hercules wants the bankruptcy court to bless a process that will allow it to shut down with "minimal oversight and disclosure," Mr. Vara's lawyer wrote. The company also wants a grant of blanket immunity to those involved in Hercules Offshore's final affairs.

That means Hercules will never have to answer questions about how hundreds of millions of dollars in value went missing in the few months before the bankruptcy filing. As of the end of March, Hercules Offshore's Securities and Exchange Commission filings reflected shareholder equity of about $537 million. Bankruptcy estimates prepared months later, however, reflect much lower values for the entire company.

Mr. Vara additionally called into question Hercules Offshore's insistence it will pay all trade debts. The company skipped filing the reports that would detail its debts, and hasn't established the usual process for claims, the U.S. Trustee said. That is likely to put a damper on the number of creditors that actually get paid.

Houston-based Hercules operates a fleet of 25 self-elevating, mobile offshore drilling units, or "jackup rigs," and 19 self-elevating, self-propelled "liftboat" vessels designed to get oil and gas out of shallow waters.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

July 28, 2016 14:45 ET (18:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.