Insolvency Law

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Insolvency Law


This article will discuss the bankruptcy law and the relative risk, directors and senior managers understand how to deal with the legal liability risks. The study focuses on bankruptcy and debt can cause financial agency directors. Director liability risk profits and not non-profit organizations may appear by law, the common law. A director can be held personally accountable for his or her own action or inaction - common (with one or more other directors) and individual (alone).

With respect to insolvency law provisions, Directors not to profit and non-profit companies have a responsibility to exercise oversight and management of the company's business due diligence. This includes, for example, to attend board meetings, overseeing the company's operation, monitoring is contained in the Letters Patent of the company's corporate object compliance, and to ensure that after the resolution adopted by the Board, informed decision based directors. Directors should be avoided if at all Board meetings may be missing. If the director cannot attend the board meeting in one, the director shall arrange for the review meeting and any financial statements or reports records. If things are not clear, the director, he or she should follow up at the next Board meeting to make the right questions.

In this paper we will discuss the personal liabilities and duties of directors with respect to insolvency law and international practices. The liabilities and responsibilities of directors as reported in insolvency law and broader scope of the aspects of liabilities will be the main ground of discussion.

Insolvency and legal risks of directors


In 1982, Cork commission developed the Report of the Review Committee on Insolvency Law and Practice. The fundamental case of the report said that several companies come to closing stages, although they could be revived. The law should support a "rescue culture", to re-establish companies for making them profitable, for long run benefit of creditors.

A White Paper in 1984 followed The Cork report, a Revised Framework for Insolvency Law, and these led to the Insolvency Act 1986. The significant orders are the Insolvency Act 1986, modified as Enterprise Act 2002, as well the Company Director Disqualification Act 1986 and the Companies Act 2006.


Insolvency act deals with individuals, bankruptcy, winding up of companies, and matters bearing on both company and individual insolvency. Failure to pay debts as they fall due is referred as Insolvency. Insolvency of a firm refers to the incapability of a business to compensate its debts.

Business insolvency is described in following ways:

Cash flow insolvency

Described in two means; identified properly as cash flow insolvency and on the other hand as business insolvency, in the case when a debtor falls cash-flow insolvent, it'll automatically become not capable to equilibrium outstanding debts.

Balance sheet insolvency

Balance sheet insolvent firm have negative net assets, where payments outstanding prevail over resources.

It is not exceptional for an organization to be balance sheet solvent furthermore being cash flow insolvent in holding liquid resources, particularly in short term amount outstanding, facing the failure to realize cash if instantly ...
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