Recovery Procedding IBC

Recovery Procedding IBC

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OVERVIEW

Insolvency is a situation when an individual or a company is unable to refund its outstanding financial loan to its lender in due time. A solution to such a situation is by modifying the repayment method or by writing the loan off. In the event such a situation is unresolved, then insolvent’s assets are sold off to pay off or to recover the outstanding debts. This is done by way of legal action in the Court of law. The Court appoints an official liquidator whose primary job is to liquidate all the assets of the insolvent and pay off the proceeds to the creditors. Although the term sounds similar to insolvency, Bankruptcy is a different concept.

Bankruptcy is a concept which is like voluntary surrender. It this case, the person voluntarily goes to the Court and officially declares that he is unable to pay any further debts. In such a scenario, the Court takes the responsibility of liquidating a person’s assets and distributes the proceeds to his creditors. The primary difference between an insolvent and a bankrupt is that a bankrupt can post the distribution of proceeds to creditors can have a new lease of life.

 

 

PROCESS OF LIQUIDATION FOR CORPORATES

In case the default is for an amount over and above Rs. 1 lakh, the creditor has the authority to initiate insolvency process as per the new Code.

THE CODE RECOMMENDS TWO AUTONOMOUS STAGES

1.  Resolution Process for Insolvency: Under this stage, the financial creditors make an assessment of whether the debtor’s business is worthy of continuing or not. The creditors come up with options for restructuring the business model to avoid any further losses.

2. Liquidation: In the event the abovementioned Insolvency Resolution Process fails, the creditors make a unanimous decision to wind down and sell the debtor’s assets to recover their dues.

 

BANKRUPTCY AND INSOLVENCY RESOLUTION IN CASE OF INDIVIDUAL AND PARTNERSHIP FIRMS

In the case of individuals and partnerships, the Code does not provide any specific time frame within which a resolution decision has to be structured. The reason behind this leniency is that individual businesses are of diverse types, and there are no set rules for the functioning of their activities. Also, it is a fact that corporate person is an artificial legal entity, hence can be Liquidated. But an individual is a real person; there is no way the term liquidation will fit him, he has to be declared a bankrupt. The Code applies to all those individuals and partnerships that make a default.

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