Fortune Peat

Is Insolvency the same as being Bankrupt?

admin — Fri, 11 Mar 2011 13:59:32 +0000

This is a common question often asked by those in serious debt difficulties, but no being insolvent does not mean you are bankrupt. Though insolvency can lead to bankruptcy it is not always a forgone conclusion. Being a bankrupt company, you will be considered as insolvent.

Once the insolvency of a company has taken place the shareholders have a choice to make, they can either sell off their shares and try to recoup the money they invested in the company or stick with it in the hope that it can regain its customer and get business back on track.

Being insolvent has different consequences depending on what form of insolvency your have been declared as, there is vast differences between individual insolvency and personal insolvency for example. We will move onto how these different types of insolvency will afect you in the long run.

Steps to Avoid Insolvency

admin — Fri, 11 Mar 2011 13:49:25 +0000

Companies facing the possibility of insolvency can take steps to keep themselves financially solvent. Using existing lines of credit to borrow money is one way to avoid insolvency, but it also creates more liability and new payment deadlines. Selling off assets to other companies is also a common hedge against insolvency. Consumers may notice a local grocery store changing hands, for example. The original grocery store chain may be approaching insolvency and selling off 30 or 40 of its local stores in order to generate immediate cash for timely debt repayment.

What other options are there to avoid insolvency

Another option for avoiding insolvency is acquisition by a larger corporation. It is not unusual for major conglomerates to seek out small but commercially viable companies for acquisition or takeover proceedings. Even if the smaller company is currently flirting with insolvency, the rights to its signature product lines may prove valuable enough to save it from financial ruin. This happens quite often in the wholesale food industry. Struggling or insolvent manufacturers of a popular product may agree to sell off all of their assets to a corporation with better financing

So What Is Insolvency

admin — Fri, 11 Mar 2011 13:45:59 +0000

Insolvency is generally defined as a financial state in which a company can no longer pay its bills and other obligations on time. Insolvency occurs whenever liabilities, or debts, exceed assets and cash flow. Once a company becomes insolvent, it must take immediate action to generate cash and settle or renegotiate current debts. Companies which cannot successfully pull themselves out of insolvency often face bankruptcy proceedings, receivership, or liquidation of all assets

Insolvency is commonly confused with bankruptcy, and the two concepts are not dissimilar. Both insolvency and bankruptcy deal with liabilities exceeding assets, but insolvency is a state of being and bankruptcy is a matter of law. Companies can be insolvent but not legally bankrupt. Insolvency can lead to bankruptcy, but the condition may also be temporary and fixable without legal protection from creditors.