About Insolvency And Bankcruptcy

The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto.

An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.

INSOLVENCY

In legal terms, insolvency is a state where the liabilities of an individual or an organization exceeds its asset and that entity is unable to raise enough cash to meet its obligations or debts as they become due for payment. Technically insolvency could be a financial state when the value of total assets of an individual or a group exceeds its liabilities.

A person facing insolvency needs to take corrective actions to rectify its situation to avoid possible bankruptcy. This can be done in many ways like generating surplus cash or by minimizing the overhead cost. This can also be done by negotiating the repayment terms with your lenders.

BANKRUPTCY

When an individual is unable to pay off his liabilities and debts then he generally files for bankruptcy. Here is asks for help from government to pay off his debts to his creditors. Bankruptcy could of two types, namely, reorganization bankruptcy and liquidation bankruptcy. Usually people tend to restructure the repayment plans to pay them easily under reorganization bankruptcy. And under liquidation bankruptcy, the debtor tends to sell of certain of their assets to pay off their debts for their creditors.

One must follow a legal procedure to declare themselves bankrupt and get aid from government to deal with their creditors. To do this debtor must apply for bankruptcy in a relevant court. Or else one of his creditors files an application in a relevant court to declare that entity or person as bankrupt. This can also be result of a special resolution passed by Register of Companies for the entity to be declared bankrupt.