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Insolvency

Insolvency occurs when an individual or business cannot meet its financial obligations as they come due, or when liabilities exceed assets. Insolvency can lead to bankruptcy proceedings, where a legal process is initiated to resolve debts through asset liquidation or restructuring. Insolvency can be caused by poor cash flow management, excessive debt, or economic downturns and is a serious financial situation for both businesses and individuals.

Example

A retail company with mounting debt and declining sales becomes insolvent, unable to pay its creditors, and is forced to file for bankruptcy.

Key points

• Occurs when an individual or business cannot meet financial obligations or when liabilities exceed assets.

• Can lead to bankruptcy proceedings for debt resolution.

• Caused by factors like poor cash flow, excessive debt, or economic downturns.

Quick Answers to Curious Questions

Signs include an inability to pay debts on time, cash flow problems, or liabilities exceeding assets.

Options include restructuring debt, negotiating with creditors, or filing for bankruptcy to reorganize or liquidate assets.

Insolvency refers to the financial state of being unable to meet obligations, while bankruptcy is the legal process used to resolve insolvency.

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