What is insolvency
Insolvency is when your business is unable to pay its debts when they are due. This means that your company has negative assets and has entered into liquidation – thus filing for bankruptcy under the appropriate law.
DeltaQuest offers a wealth of knowledge with regards to offshore company registration and formation in jurisdictions across the globe. For information, please visit our Company Registration service page.
Insolvency explained
Many newly formed businesses within their first two years of operation come close to, or reach insolvency due to unproductive and unsuccessful business activity. It is important to consider all options and factors before a business entity files for insolvency.
If your business is at the point where payments have exceeded your assets, then your company has reached insolvency. Insolvency can be defined in two ways; either by cash flow insolvency, or balance sheet insolvency.
Cash flow insolvency is when you are making payments that exceed what capital is coming in to the company. There are a number of ways to avoid reaching cash flow insolvency, and the cash flow plays a huge role in avoiding insolvency. Balance sheet insolvency relates to an imbalance of capital and reserve, along with the total assets of the company in relation to the money owed out for loans.
Knowing the implications and workings of your business is essential if you wish to avoid cash flow or balance sheet insolvency. Once your company has reached insolvency it is important that you act to maximize creditors interests. Failure to do so could lead to personal liability.
Individuals and companies that are facing bankruptcy and wish to close down their business entity are advised to seek the assistance of professionals in the field. Through the advice and guidance of lawyers and experienced individuals, you can ensure that you file for insolvency under the correct law in the specific jurisdiction, as well as administer appropriate documents in a professional and timely manner.
Print This Post
