BANKRUPTCY

Bankruptcy is a legal term for when a person or business cannot repay their
outstanding debts. The bankruptcy process begins with a petition filed by
the debtor, which is most common, or on behalf of creditors, which is less
common. All of the debtor's assets are measured and evaluated, and the assets
may be used to repay a portion of outstanding debt.

Types of bankruptcy:

They are three types of bankruptcy

1. Liquidation bankruptcy: Which means that the trustee sells off all non-
exempt assets held by the debtor so that the debts can be repaid to the fullest
extent possible.
2. Bankruptcy filing: The debtor continues to function, maintains ownership
of all assets, and tries to work out a reorganization plan to pay off creditors.
3. For farm owners: The debtor still owns and controls his assets and works
out a repayment plan with the creditors. The debtor retains control and
ownership of assets. He also works out a three to five-year repayment plan.
Some portion of the debt may be discharged, depending on the income of the
debtor. There are also limits on the amount of debt involved.

Process of bankruptcy

1. Complete the bankruptcy petition, schedules, and other forms, which will
require you to list your debts, assets, financial transactions, and so on.
2. Once you've filed your paperwork, the bankruptcy trustee takes over your
case.

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 3. After you attend a brief court hearing (the meeting of creditors) and meet a
few other requirements, you'll receive your discharge
4. Your case will be closed, usually four-to-six months after you file for
bankruptcy.
CASE STUDY

ONE GOVERNMENT COMPANY MOVES NCLT AGAINST

ANOTHER

Andhra Pradesh Power Generation Corporation (AP Genco) has dragged a

Telangana power distribution company to the tribunal, seeking to recover more
than ₹3,700 crore through insolvency proceedings.

AP Genco has filed its petition before the NCLT’s Hyderabad bench against
Northern Power Distribution Company of Telangana under Section 9 of the
Insolvency and Bankruptcy Code, 2016, seeking to initiate the corporate
insolvency resolution process.

The power generation firm had earlier claimed around ₹4,000 crore from
Telangana’s power distribution entities against supply of power for over three-and-
a-half years and threatened to stop power supply. It subsequently discontinued
supplies.

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 LIQUIDATION

Liquidation in finance and economics is the process of bringing a business to an

end and distributing its assets to claimants. It is an event that usually occurs when a
company is insolvent, meaning it cannot pay its obligations when they come due.
As company operations end, the remaining assets are used to pay creditors and
shareholders, based on the priority of their claims.

When a company goes into liquidation its assets are sold to repay creditors, the
business closes down, and its name is removed from the register at Companies
House. There are two different types of liquidation process, however, solvent and
insolvent liquidation.

Types of liquidation:

There are two different types of liquidation process

1. Solvent Liquidation and

2. Insolvent liquidation.

1. Solvent liquidation usually involves a director’s retirement, or may be the

closure process chosen when a business serves no further useful purpose.
This is called a Members’ Voluntary Liquidation (MVL).
2. Contrastingly, insolvent liquidation occurs when a company cannot carry on
for financial reasons. The overall aim of an insolvent liquidation process is
to provide a dividend for all classes of creditor, but it is often the case that
unsecured creditors receive little, if any, return.\

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 The Procedure for Liquidation:

1. A liquidator is appointed, either by the company shareholders passing a

resolution (voluntary liquidation) or by the Court making an order
(compulsory liquidation).
2. The liquidator collects the assets of the company (including uncalled capital;
that is, amounts unpaid on shares) and pays the creditors in order of priority.
3. The liquidator distributes any surplus funds to the shareholders.
4. The company is then formally dissolved.

CASE STUDY

GLASS COMPANY IN LIQUIDATION

24 April 2017

Glazewell Glass S.V.T Limited, encountered financial difficulties as a result of

the recession and suffered a severe drop in turnover. The directors believed that,
having been involved in the business for 40 years, that the market had changed,
and that the company had no future.

It was decided to put the company into a creditors voluntary liquidation.

As liquidators for Glazewell Glass S.V.T Limited, we successfully arranged full

recovery of debt for the secured and preferential creditors. In addition, we
secured 60p in the pound for unsecured creditors who were owed £186k. This
was an excellent result for all parties involved as high returns can be rare in
liquidation cases.

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 Conclusion

Bankruptcy and Liquidation both are the worst kind of situation that can ever
happen. However, in Bankruptcy, a new start is given to the person declared
bankrupt, but there are no chances of the new start in case of liquidation. As the
liquidation is limited to companies only, it is not necessary that every company
which is liquidated is bankrupt. As there are many instances where the company is
financially sound, but still it is liquidated because its shareholders have so
resolved.

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 References

 https://www.investopedia.com/terms/l/liquidate.asp
 https://www.investopedia.com/terms/b/bankruptcy.asp
 https://economictimes.indiatimes.com/industry/energy/power/one-
government-company-moves-nclt-against-
another/articleshow/62565352.cms
 https://www.companyrescue.co.uk/rescue-stories/glass-company-in-
liquidation-case-study-3620/