Released on: January 27, 2008, 1:50 am

Press Release Author: barbara camie

Industry: Financial

Press Release Summary: Bankruptcy is a term attached to companies or firms that do
not comply with the rules and regulations governing the banking industry.

Press Release Body: For instance, if any company fails to repay the loans it has
borrowed from a bank, it becomes a non-performing asset for the bank or the lender.
Eventually, the non-performing asset for the bank could even become a liability.
Much before the non-performing asset of the bank becomes a liability; it is disposed
off through various measures to recover the loan. Such a company is declared
bankrupt. If a particular company is on the verge of collapse due to mounting loans,
it can file for bankruptcy.

Such companies will be referred to the authorities concerned for unbundling and
disposing off its assets. It is carried out in a systematic way to ensure that the
lenders are paid all their dues. All the pending dues will be cleared by the
liquidator appointed by the government. The company promoters of the blacklisted
firm will not be eligible for any kind of financial assistance in future. Therefore,
many companies, which are on the verge of collapse, try the maximum to bail
themselves out of the crisis. Bankruptcy could mean the end of the road for any
company. There will no dealing with such companies by another company or bank since
they have been in the red for quite a long time.

Bankruptcy could also mean that the companies will not be able to compete for any
work in the public domain or the private set up. The process of liquidating the
company is lengthy and time consuming. Once the company becomes bankrupt, the
liquidator will invite bids from various interested parties to dispose off the
assets of the bankrupt firm. The assets put up on sale are mostly the fixed assets
of the company such as land, building, machinery, vehicles and inventory of
products. The highest bidder will be asked to conduct the inspection of the assets
as in where in condition. This is another time consuming process. It could take
anywhere between six months and one year for a liquidator to dispose the assets of
the company. If the assets are attached as collateral to any bank from which the
loan has been raised, such assets cannot be auctioned or sold. The bank will be
entitled to take control of the collateral and dispose them at an appropriate price
to recover the loan. The fixed assets may fetch the appropriate price or even less
than the loan given to the bank. In most instances, the lender will be in a position
to recover the entire loan sanctioned to the borrower.

The promoters of a firm that has gone bankrupt too will be in a difficult position.
No finance institution or bank will be willing to lend them any kind of financial
assistance in future if they want to start a new business. Therefore, every company
should take appropriate steps to ensure that it does not go bankrupt. Auditors of
the company play a key role in ensuring that the financial health of the firm is
good.

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