COMAPNY LAW

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NAMAN DHAR DUBEY (Querist)
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19 October 2009 WHAT SI THE DIFFERENCE BETWEEN SOLVENCY AND BANKRUPTCY.?Why can't be a company be bankrupt but can b insolvent.?

Ankur Garg

Ankur Garg (Expert)
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20 October 2009 Hi,

Insolvency is a term used to describe the state of a company unable to pay their creditors. Bankruptcy is a legal instrument to protect a company in the state of insolvency.
They are very different actually. Insolvency is a financial/accounting term that means one has liabilities or debts in excess of their assets. Obviously it is an important consideration in financial analysis and credit matters. Many people or companies can be insolvent without an outward signs, or even as part of their plan...a stat up for example frequently is but it's plan is to generate income in the future, as it markets it's product, and have more assets than debt.
Bankruptcy is a legal term and actually a legal process. To be bankrupt one needs to have filed with the Court the required documents, under the appropriate program or Law, and be declared bankrupt. At that point a number of legal things occur which have to do with the court providing financial protection and taking over the affairs.
Commonly (and the way the Law is intended), someone becomes insolvent, with no chance of remedy, before they file bankruptcy.
Of course the term bankrupt may be used in other than financial ways as a informal expression.

Regards

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