Insolvency and Bankruptcy Are Two Different Things, Here's The Difference

Admin BFI
23 September 2022
Insolvency and Bankruptcy Are Two Different Things, Here's The Difference

Insolvency is a term in finance that some of us may be familiar with. Moreover, if we hear of a company experiencing financial problems.

The word insolvency is also often linked or has a similar meaning to bankruptcy. But in fact, Insolvency and bankruptcy are two different things.

What are the differences between the two? Check out the full explanation in the following article.


Definition of Bankrupt

Before going into the discussion regarding the difference between Insolvency and bankruptcy, it's good to first know what the term Insolvency is and other important things related to the term.

Quoted from the Indonesian Financial Services Authority (OJK), the definition of Insolvency is a debtor who has two or more creditors who do not pay at least one debt that is due and collectible. The debtor is declared bankrupt through a competent court decision. Either at his own request or at the request of one or more creditors; if the debtor is a bank, the application for a declaration of Insolvency can only be submitted by Bank Indonesia.

Meanwhile, according to the KBBI what is meant by Insolvency is falling (about companies and so on); bankruptcy; falling into poverty.

If a conclusion is drawn from the definition above, it can be interpreted that Insolvency is a condition in which the debtor experiences difficulties or difficulties in paying off his debts and is declared bankrupt by the court.

The court that has the authority to sue the debtor is the commercial court. Furthermore, because the debtor is unable to pay off the debt, the debtor's assets or assets will be distributed to creditors in accordance with the applicable court decision.

The law governing Insolvency is Law no. 37 of 2004 concerning Bankruptcy and Suspension of Obligation to Pay Debt. The bankruptcy trial itself will usually be held no later than 20 days after submitting the application.

Later, both debtors and creditors will be summoned to attend the hearing and it will be decided whether there is an Insolvency. If the existing decision is not in accordance with the facts, both parties can still apply for other legal remedies, namely a cassation at the Supreme Court (MA).

Insolvency Filing Procedure

In the Insolvency filing procedure, there are several parties who have the right to file it. These include:

1. The debtor, voluntarily submits his own application for Insolvency

2. Creditors, submitted by one or more creditors

3. Prosecutor's Office in the name of public interest

4. Banks and Financing Companies, in this case, are included in the debtor

5. Capital Market Supervisory Agency (Debtor) which is a Securities Company

Juridically, the following are the requirements for filing for Insolvency :

1. There is debt, at least one debt that can be collected and is due

2. Have debtors

3. Consists of two or more creditors

4. There is a petition for a declaration of Insolvency

5. There is a declaration of Insolvency from the Commercial Court

Furthermore, related to how to file for Insolvency are as follows.

1. File an application for Insolvency by fulfilling the requirements in Law no. 4 of 1998.

2. The period of application for Insolvency until the Insolvency decision is rendered is 90 days. The Insolvency decision is something that cannot be contested.

3. A verification meeting or other name is held, namely a registration meeting for accounts payable. At this meeting, the debtor will be investigated further related to data regarding the nominal debt and receivables owned. This is important to do as a consideration of rights for creditors.

4. The peace process, before proceeding with the Insolvency process, this process will be scheduled first. If after the peace is held, the Insolvency process is declared over, and otherwise, this process will continue to the next stage.

5. Next is the homologation process if the peace process is accepted. This process is approved by the commercial court.

6. Insolvency, which is a condition where the debtor is unable to pay off his debt because the amount of property or assets owned is less than the amount of the existing debt.

7. Liquidation or Settlement, is a stage where the assets or assets owned by the debtor will be sold and the proceeds are distributed to the congruent creditors after deducting certain costs.

8. Rehabilitation, is an effort made to restore the good name of creditors. This process can only be carried out if the peace process is accepted. If the opposite is true, then there is no need for rehabilitation.

9. Finally, when all the above processes have been completed, the Insolvency ends.

Pailit Adalah

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How to Prevent Insolvency

Insolvency is something that can be prevented. Some things that can be done as preventive or preventive measures are:

1. Manage your finances as best you can

2. Creating an effective, efficient, and well-executed business strategy

3. Routinely evaluate the running of the business from time to time so that handling can be done as early as possible if things go wrong

4. Improving service to consumers or customers

5. Innovate and be open to ideas and input from company members and consumers

6. Seek professional opinion regarding business development and next step planning

7. Continue to increase the potential of the company through training programs that can later be followed by employees or company members

What is the Difference Between Bankrupt and Bankrupt?

Basically, an easy way to tell the difference between Insolvency and insolvency is to look at the company's financial condition. Companies that are categorized as bankrupt can be ascertained that their financial condition is not healthy because they can no longer finance the company's operations.

To make it easier for you to understand, let's see a comparison between the two as follows.

Bankruptcy is a condition in which a company suffers a large loss which results in the company being forced to go out of business. This certainly indicates if the existing financial condition is not healthy. According to the Constitutional Court Decision Number 18/PUU-VI/2008 p. 27, Bankruptcy can occur due to the following factors.

1. Mismanagement

2. External Factors Outside the Authority of Business Actors

Meanwhile, Insolvency is a condition that can happen to a company even though the company's financial condition is healthy. This is because the company is in debt due to two or more debtors who do not fulfill their obligations to pay off debts when they fall due.

Both Insolvency and bankruptcy are conditions that can be avoided if the company's financial management procedures are regulated as well as possible.

Sobat BFI, that's the explanation regarding Insolvency and Bankruptcy Are Two Different Things, Here's the Difference. Hopefully, this information can be useful for all readers, especially in understanding the difference between bankruptcy and debt. Make sure to always commit to paying off credit or repaying existing loans. Do not let us neglect and lose important assets.

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