insolven

Insolvency is a financial condition in which an individual or organization cannot meet its debt obligations as they come due, or in which total liabilities exceed assets. It is a state or condition, not a formal verdict. While insolvency describes the financial problem, bankruptcy or similar legal proceedings are the processes that may be initiated to address it. The terms and procedures vary by jurisdiction, and insolvency does not automatically imply that a formal action has been taken.

There are two main forms of insolvency. Cash-flow insolvency occurs when there is not enough liquidity to pay debts as they fall due. Balance-sheet insolvency occurs when liabilities exceed assets. A party can be insolvent even if ongoing operations generate profits, if cash flow problems or timing issues prevent meeting obligations in a timely manner.

Insolvency can trigger formal procedures such as restructuring, administration, receivership, liquidation, or bankruptcy. The exact mechanisms and terminology depend on national law. The overarching aim of these processes is to maximize value for creditors while providing a path for the debtor to resolve obligations, either by reorganizing the business or by orderly cessation of operations.

Prevention and management focus on early warning signs, renegotiation of terms with creditors, contingency planning, and, when appropriate, the engagement of insolvency professionals. Cross-border insolvency issues may be coordinated under national laws and international conventions to handle multi-jurisdictional proceedings.