Insolvency occurs when anyone or a firm cannot meet its debts. Accounting insolvency takes place when total financial obligations exceed total assets. Cash-flow insolvency involves an absence of liquidity to pay debts because they fall due. Equilibrium sheet involves having negative assets—where liabilities meet or exceed assets. It seriously isn’t a synonym pertaining to bankruptcy, which is really a determination of insolvency created by a court associated with law with ensuing legal orders designed to resolve the financial distress. It is the inability to pay a debt if it’s due, and most businesses fear the concept of becoming insolvent.
Insolvency Definition
