Insolvency

Definition

Insolvency is a financial state where an individual's or organization's liabilities exceed their assets, making them unable to meet debt obligations.

Purpose

Insolvency serves as a critical indicator of financial distress, prompting necessary legal and financial actions to address the inability to pay debts, which can include restructuring or bankruptcy proceedings.

Examples of Use

• A company unable to pay its creditors files for insolvency and undergoes restructuring.
• An individual declares personal insolvency and seeks debt relief through legal proceedings.
• Assessing a business's financial health to prevent insolvency through better financial management.

Related Terms

• Bankruptcy: A legal process for individuals or businesses unable to repay outstanding debts.
• Debt Restructuring: The reorganization of a company's outstanding obligations to improve financial stability.
• Liquidity: The ability to meet short-term obligations with available assets.

Notes

Insolvency requires careful management and legal guidance to navigate financial recovery and protect stakeholders' interests.