Discussion
Consider the following statements regarding insolvency and bankruptcy :
1. Bankruptcy refers to a financial state in which an individual or entity is unable to pay off their debts as they become due.
2. Insolvency refers to a legal process, where the assets of the debtor are liquidated or reorganized for the benefit of creditors.
3. Bankruptcy is a state whereas insolvency is the conclusion.
4. The Insolvency and Bankruptcy Board of India (IBBI) is the regulatory body responsible for overseeing insolvency and bankruptcy proceedings.
Which of the above statements is/are correct?
Answer: C
The only correct statement is 4.
The Insolvency and Bankruptcy Board of India, set up under the Insolvency and Bankruptcy Code, 2016, regulates insolvency professionals and processes (4).
Statements 1 and 2 swap the terms. Insolvency is the financial state of being unable to pay debts as they fall due; bankruptcy is the legal process or declaration that follows, in which the debtor's assets are liquidated or reorganised for creditors. Statement 3 also reverses them: insolvency is the state and bankruptcy the legal conclusion.
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