This document summarizes key concepts from the Insolvency and Bankruptcy Code, 2016 in India. It defines insolvency as a state where a company cannot continue operations due to financial difficulties, and bankruptcy as being legally unable to pay debts. Liquidation is the process of winding down a company. The code was needed to revive companies before liquidation, reduce non-performing assets on banks, provide a unified framework, and allow easy exit for corporations. The legal liquidation process prioritizes creditors and shareholders, with a liquidator appointed to sell assets and form a liquidation trust to distribute funds.

1. INSOLVENCY AND
BANKRUPTCY
CODE,2016

2. INSOLVENCY , BANKRUPTCY AND
LIQUIDATION
 INSOLVENCY – A state in which financial difficulties of a
company are such it is unable to run its business at its
current pace .
 BANKRUPTCY –When a person is legally declared as
incapable of paying their duties and obligations.
 LIQUIDATION – The process of winding up a company.

3.  Insolvency precedes bankruptcy and liquidation
follows bankruptcy .
 Insolvency warnings are drop in sales , delay in
payments, increasing reliance on credit.
 Cash flow test : where cash flows “ in” is less than
cash flow “out”.

4. Why this code was needed ?
To ensure revival before liquidation
Reduce the mounting NPA on banks
Need of a unified code
To provide an easy exit for corporates

5. Legal process of liquidation
 As discussed , liquidation is the process through which a company which
is running is shut down and its existence comes an to an end . This often
happens when the companies are unable to pay its creditors and hence
need to sell off its assets to pay them .
 Insolvency process is stated in section 33 of insolvency and bankruptcy
code .
 PRIORITY LIST OF CREDITORS
When company files for liquidation ,it falls under two categories i.e.
solvent and insolvent .to safeguard the creditors interest , company
follows the transparent process to liquidate the assets of the company to be
distributed equally amongst the creditors as per the size of their claim.

6. • Workmen dues and debts due to secured creditors
• Wages and dues of employees other than workmen
• Financial debts owned to unsecured creditors
• Dues owned to government
• Residuary debts and dues
• Preference shareholders
• Equity shareholders or partners
PROCESS FOLLOWED :
Once the liquidation process is initiated as per the above mentioned criteria,then the moratorium
shall commence.
Following the moratorium , public announcement is generally made about the corporate debtor ie
airline has been liquidated .
LIQUIDATOR is appointed as per section 34 and fees to be paid to him for the proceedings is
decided .
LIQUIDATION TRUST is formed as per section 36 of insolvency and bankruptcy code .

7. LIQUIDATION laws and process…….
 SECTION 38 : It covers how to consolidate the
claims from financial and operational creditors
 SECTION 39: It defines how to verify claims .
 SECTION 40: It defines the process of acceptance
and rejection of claims
 SECTION 42: it defines how the applications
against the liquidator decision shall be processed.