Feb 06,2019 | 15 min read

How You Can File Insolvency Petition

Here's How You Can File Insolvency Petition

What is insolvency?


When an individual or any organisation is unable to repay the money owed, then the state of being in this difficult situation is called insolvency. Furthermore, when a person or an organization is in the state of insolvency, they are called insolvent.


There are two types of insolvencies –

  • Cash flow insolvency – the debtor suffers the lack of financial liquidities which makes it impossible for her to repay debts.
  • Balance sheet insolvency – This type of insolvency occurs when a person or an organization does not acquire enough assets to pay all their debts.


When stepping into this game of business law, it is important that you must hire a corporate lawyer by your side. Hire the best corporate lawyer with us.


Purpose of insolvency law –


Insolvents need to understand that this is not a debt recovery tool. There’s absolutely no need to be afraid in filing for insolvency as this mechanism is made to help both insolvents and creditors.


The primary purpose of insolvency law is to maximise returns to creditors through collective payment processes. Insolvency proceedings are collective in nature and are meant to be beneficial for the entire body of debtors and creditors.

A good corporate lawyer will be able to guide you better through these processes.


Difference between Insolvency and Bankruptcy –


Insolvency is a state of economic unease and distress.
Bankruptcy on the other hand is a court order that declares, a person or an organization is broke and they need to imply certain measure to recover their debts.


Bankruptcy is a legal procedure to solve insolvency. However, the opposite can’t be the same.
In case you’re insolvent and are planning to file for bankruptcy, seek legal advice from your corporate lawyer.


Who are eligible to file for insolvency petition?


An individual can file an insolvency petition if they’re able to fulfil the following conditions:

  • Under arrest or imprisonment in execution of a money decree.
  • Debt amounts to INR 500 or more.
  • There is a subsisting order of attachment against his/her property.

A creditor can file insolvency petition if –

  • The debts amounts to INR 500 or more.
  • The debt is already due.
  • Insolvency petition has been filed within three months of the act of insolvency.


Insolvency petition can be filed at a district court. If the debtor has already been imprisoned, then the insolvency petition can be filed.


Distribution of Assets –


Provincial Insolvency Act, 1920 provides the following facilities –

  • Debts to local authority, or local government;
  • Repayment of rent to landlord, for an amount not exceeding one month’s rent.
  • Salary or wages not paid, during four months preceding the date of presentation of insolvency petition.

Hire corporate lawyer, business registration lawyers and get free legal advice for all your legal queries, with us. 


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