Insolvency refers to a financial state in which an individual or organization is unable to pay their debts or meet their financial obligations as they become due. It is a condition that typically arises when the liabilities or debts of an entity exceed its assets or when there is a significant cash flow problem.
When an individual or organization is insolvent, they may face difficulties in fulfilling their financial commitments, such as repaying loans, meeting contractual obligations, or paying suppliers. Insolvency can be temporary, with the possibility of recovering from financial distress, or it can lead to bankruptcy or liquidation if the financial situation cannot be rectified.
In cases of insolvency, various legal procedures and mechanisms may come into play depending on the jurisdiction. These may include debt restructuring, negotiations with creditors, asset liquidation, or filing for bankruptcy protection. The objective of such processes is to address the financial difficulties, protect the rights of creditors, and seek a resolution that is fair and equitable for all parties involved.
Insolvency can occur at both individual and corporate levels, and it can have significant implications for the financial stability and future prospects of the insolvent entity.