Insolvency and bankruptcy code, 2016

WHAT IS INSOLVENCY? HOW IS IT DIFFERENT FROM BANKRUPTCY?

Insolvent means a person who is not able to pay his/her/debts in the ordinary course of business. Insolvency is “the state of one whose assets are insufficient to pay his debts.”?

BANKRUPTCY.

The word Bankruptcy has embedded in the trade that was carried out on?Ponte Vecchio, a medieval segmental arch bridge, in Florence, Italy. In medieval Italy, if a banker, who conducted his transactions on a bench was not able to meet business obligations and was in debt, his bench was broken, and which shows a symbol of failure and his inability to continue.

WHY NEW LAW?

It is not true to say that India did not have any law dealing with Insolvency before the enactment of the Insolvency and Bankruptcy Code, 2016. However, the legal framework in that respect was scattered and extremely inefficient.?

Following are the reasons for the need for a new law for insolvency in India–

• There were various overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals.
• The framework did not provide the lenders an effective and timely way of recovery or restructuring of defaulted assets and caused undue strain on the Indian credit system.
• Individual bankruptcy and insolvency was dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, which are both about century-old legislations.
• The liquidation of companies was operated under various laws and different authorities.
• None of the laws provided for a strict time within which the process to resolve insolvency was to be completed.

After considering these shortcomings of the previous legislation, the Insolvency, and Bankruptcy Code, 2016 was enacted to “consolidate and amend these laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.”

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise.?AKGVG & Associates ?does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates