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What Is Insolvency

What is insolvency?


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You are insolvent if you cannot pay debts when they become due (either now or, because of some contingent liability of the business, in the future) or if your assets are worth less than your total liabilities. The first is sometimes called 'cash flow insolvency' and the second 'balance sheet insolvency'. Having a profitable business is not, in itself, a guarantee that you will not be insolvent. cash flow problems — for example, if customers fail to pay money they owe you, or if you over-invest in equipment — that mean you cannot pay your debts as they fall due could mean you are insolvent, even though the business is healthy otherwise.

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Tags: Insolvency And Bankruptcy

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