FREE CASE EVALUATION
Insolvency Is the Inability to Pay Debts As They Become Due
- Home
- /
- Blog
- Author :The Peck Law Group
Insolvency means the inability to pay one’s debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.
Business insolvency is defined in two different ways:
Cash flow insolvency
Unable to pay debts as they fall due.
Balance sheet insolvency
Having negative net assets – in other words, liabilities exceed assets.
A business may be ‘cash flow insolvent’ but ‘balance sheet solvent’ if it holds illiquid assets, particularly against short term debt that it cannot immediately realize if called upon to do so. Conversely, a business can have negative net assets showing on its balance sheet but still be cash flow solvent if ongoing revenue is able to meet debt obligations, and thus avoid default – for instance, if it holds long term debt. Many large companies operate permanently in this state.
Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency.
Definition of inability to pay debts:
(1) A company is deemed unable to pay its debts;
(e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due. This is known as cash flow insolvency.
(2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities. This is known as balance sheet insolvency.
Consequences of insolvency:
The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the liquidation and elimination of insolvent entities but on the remodeling of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of their business. This is known as Business Turnaround or Business Recovery. In some jurisdictions, it is an offense under the insolvency laws for a corporation to continue in business while insolvent. In others (like the United States with its Chapter 11 provisions), the business may continue under a declared protective arrangement while alternative options to achieve recovery are worked out. Increasingly, legislatures have favored alternatives to winding up companies for good.
About the Author
Attorney Steven Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.
Free Case Evaluation
Categories
- Advanced Health Care Directive
- Arbitration Agreements
- Assisted Living
- Assisted Living Abuse and Neglect
- Assisted Living Abuse Guides
- Assisted Living Abuse News
- Auto Accident News
- Auto Accidents
- Aviation Claims
- Bed Bug Injury
- Bed Bugs
- Bed Rail Injury
- Bed Sores
- Birth Injury
- Brain Injuries
- Business Law
- California
- California Legal News
- California Nursing Homes
- California Slip and Fall Attorney
- Catastrophic Injury
- Corona Virus Updates for Elderly in California
- Covid-19 Virus in California Nursing Homes
- Decubitus Ulcers, Pressure Sores and Bed Sores
- Dehydration
- Elder Abuse
- Elder Abuse Guides
- Elder Abuse Information
- Elder Abuse Lawyer
- Elder Abuse News
- Elder Law
- Elder News
- Elderly Concussions
- Elopement/Wandering
- Falls
- Financial Elder Abuse
- Infections
- Injury Law
- Malnutrition
- Medical Malpractice
- Motorcycle Accidents
- Negligence
- News
- Nursing Home
- Nursing Home Abuse Guides
- Nursing Home Abuse News
- Nursing Home Infections
- Nursing Home Sexual Abuse
- Nursing Homes
- Ordinary Negligence
- Over medication
- Peck Law Group News
- Personal Injury
- Power of Attorney
- Premises Liability
- Pressure Injury
- Pressure Ulcers
- Probate Litigation
- Product Liability
- Professional Negligence
- Range of Motion
- Real Stories of Elder Abuse and Neglect
- Reporting Abuse
- Residential Care Facilities for the Elderly
- Sepsis / Septic Shock
- Skilled Nursing Facilities
- Slip and Fall Accidents
- Spinal Cord Injury
- Subacute Care Facility Abuse
- Telemarketing Fraud
- Traumatic Brain Injury
- Truck Accidents
- Uncategorized
- Understaffing in Long-Term Care
- Wrongful Death
Popular Posts
Elder Care Facility Abuse and Neglect
Elder Abuse and Neglect at Skilled Nursing Facilities
Assisted Living Homes: What to Look Out For
How to Pick the Right Nursing Home in California
Bar Memberships and Affiliations
The Peck Law Group stays up to date and in touch with the legal community through various memberships and affiliations.
Get a FREE Case Evalutation Today...
Contact us today for a free, no obligation review of your case.
Get Started Today