Insolvency
When a person or company cannot pay its debts as and when they fall due. The starting concept behind most formal recovery and enforcement procedures.
What insolvency means
Insolvency describes a situation where a debtor is unable to pay its debts as and when they become due and payable. It is generally about cash flow and the ability to meet obligations on time, not simply whether assets outweigh liabilities on paper. A business can hold valuable assets and still be insolvent if it cannot turn them into cash quickly enough to pay creditors.
- Companies that are insolvent may enter administration, liquidation or receivership.
- Individuals who are insolvent may consider bankruptcy or a debt agreement.
Why it matters to creditors
For a creditor chasing payment, signs of insolvency change the picture. Once a debtor is formally insolvent, individual recovery action often gives way to a collective process managed by an external practitioner. Acting early, before a debtor's position worsens, usually improves the prospect of recovery. This is general information only and not legal or financial advice. If you are owed money by a business showing signs of distress, you can refer a debt to discuss your options.
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