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RELATIONSHIP BETWEEN BANKRUPTCY, INSOLVENCY & LIQUIDATION ?

  1.  “Bankruptcy” is a legal proceeding involving a person or business that is unable to repay outstanding debts.
  2. The bankruptcy process begins with a petition filed by the debtor, or by the creditors.
  3. All of the debtor’s assets are measured and evaluated, and then these assets may be used to repay a portion of outstanding debt.
  4. In lucid language, if any person or entity is unable to pay off the debts, it owes to its creditors, on time or as and when they became due and payable, then such person or entity is regarded as “insolvent”.
  5.  “Liquidation” is the winding up of a corporation or incorporated entity. There are many entities that can initiate proceedings that will lead to Liquidation, those being:The Regulatory Bodies;
Ø  The Directors of a Company;
Ø  The Shareholders of a Company;  and
Ø  An Unpaid Creditor of a  Company

  1.  In nut shell, insolvency is common to both bankruptcy and liquidation. Not being able to pay debts as and when they became due and payable is the leading cause for Liquidation and is the only way that can cause a natural person to become a bankrupt.

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