Have you ever got confused between insolvency and bankruptcy? If this question is bothering you, then read the article ahead. A person can be insolvent without being bankrupt but cannot be bankrupt without being insolvent. An insolvent person or an organization is the one where he is not able to pay bills as and when they become due and payable. A bankrupt person or organization is one where is declared as incapable of paying their dues and payable bills. It is a smart idea to organize these enactments than to manage them under one umbrella. Hence, the Insolvency and Bankruptcy Code was enacted in India in 2016. This act took birth by revoking the SICA (Sick Industrial Companies Act) act. The loopholes of the past were filled and The Insolvency and Bankruptcy code appeared with a broader reach. This enactment addresses the issues with more efficient Code and Regulations.
The aim behind the code
If an insolvency law is not formed, every claimant would need to race to get a lot of the company's benefits. this battle would result in liquidation (the process of winding up a corporation or incorporated entity) of the organization. It can cause damage to the organization's hierarchical worth and misfortunes. This is the exact aim behind the presence of The Insolvency and Bankruptcy Code. If we look in the past, there has been a store of laws on indebtedness but unfortunately neglected to resolve the insolvency issues. The Presidency Town Act, 1909 to Provincial Insolvency Act 1920, the Sick Industrial Companies Act 1985, and many more. But, due to an unorganized structure, sound structured insolvency and bankruptcy law was formed in 2016 which tackled all these issues.
The 2016 code applies to companies as well as individuals. It accommodates a time -bound procedure to determine bankruptcy and when a default in reimbursement happens, creditors gain control over the debtors' assets and have the choice to evaluate indebtedness within the 180-day time frame.