1. 1.
The term insolvency is used
for both individuals and organizations. For individuals, it is known as
bankruptcy and for corporate it is called corporate insolvency. Both refer to a
situation when an individual or company are not able to pay the debt in present
or near future and the value of assets held by them are less than liability.
2.
Insolvency in this Code is
regarded as a “state” where assets are insufficient to meet the liabilities. If
untreated, insolvency will lead to bankruptcy for non-corporates and
liquidation of corporates.
3.
While insolvency is a
situation which arises due to inability to pay off the debts due to
insufficient assets, bankruptcy is a situation wherein application is made to
an authority declaring insolvency and seeking to be declared as bankrupt, which
will continue until discharge.
4.
From the above, it is
evident that insolvency is a state and bankruptcy is a conclusion. A bankrupt
would be a conclusive insolvent whereas all insolvencies will not lead to
bankruptcies. Typically insolvency situations have two options – resolution and
recovery or liquidation.
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