Bankruptcy - Free Legal Videos

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Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. Creditors may file a bankruptcy petition against a debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are owed or initiate arestructuring. In the majority of cases, however, bankruptcy is initiated by the debtor (a "voluntary bankruptcy" that is filed by the bankrupt individual or organization).

Indian Bankruptcy / Insolvency law failed to keep pace with the domestic and international developments. The stream of insolvency laws can be segregated chiefly under two heads: Personal Insolvency, which deals with individuals and partnership firms governed by Provisional Insolvency Act, 1920 and Presidency Towns Insolvency Act, 1908 and Corporate Insolvency, whose consequence is winding up of the company under the Companies Act, 1956.

Both, the Companies Act, 1956 under which winding up of companies is carried out and Sick Industrial Companies (Special Provisions) Act of 1985 which deals with revival of companies fail to capture the true relevance of the Insolvency Law besides not meeting the dynamics of the modern economic system. The Act now stands Repealed.

The two laws were enacted to cater to meet the expectations of industries thriving in a protectionist environment unexposed to competition in a closed economy. Both the laws do not provide for engagement of professionals and their skills in the Insolvency system.

The Securitisation, Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI in short) provides for the establishment of asset reconstruction companies (ARC in short), which would undertake the management/realisation of non-performing loans acquired from secured creditors by taking over, change the management. While winding-up and schemes of arrangement are carried out under the aegis of the Courts, the Board for Industrial and Financial Reconstruction (BIFR in short) has been set up (under SICA) for the restructuring/rescue of sick companies