What is Insolvency?

Insolvency is the state of being unable to pay the money owed, by a person or company, on time; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.

Once a bank files a petition under the Insolvency code in the NCLT. The court on examining the petition as per the Insolvency and Bankruptcy code 2016, the court declares a company insolvent.

Image result for jaypee infra insolvency

What after the company is declared insolvent?

The NCLT will appoint an insolvency professional for the company to see if any debt reconstruction and is given 180 days to finalize a resolution, the main aim is to revival of the company by debt restructuring and if the creditor agree to an agreement of debt restructuring process the company is revived. However the board of directors are suspended for a period of 180 days. All the court cases of recovery of debt also remains suspended and vest with NCLT.

If the resolution fails then company goes for liquidation.

What Home buyers should do?

Homebuyers should apply to the company in the prescribe format and give details of their investment they will be treated as unsecured creditors.

What is the priority of getting money back?

The unsecured creditors will have last priority, that is after the secured creditors,workmen,state government are paid what is left is distributed equally among the unsecured creditors.

What is to be done?

The chances of getting money after the liquidation process are bleak considering the huge amount of debt and interest thereon.

what’s the lesson?

Investing in under construction projects offered by developers is a risky investment in India as developers tend to divert the funds to other projects and deadlines of the projects missed by years.it is always to buy a property with immediate delivery of possession, complete in all aspects to safe guard your investments.

By Advocate Nitish Banka

Advocate Supreme Court