Insolvency
Simply put, solvency is the state of being able to pay off one’s debts and cover expenses. Whether on a personal or corporate level, solvency is generally a good indicator of financial health and wellbeing. In contrast, the opposite state of insolvency – inability to pay off debts or having more liabilities than assets – can put you or your company in dire straits.
Although applicable to individuals, insolvency plays a particularly large role in discussions of limited liability partnerships.
Cash Flow versus Balance Sheet
The two different types of insolvency briefly mentioned above constitute the main categories of this situation:
- Cash Flow insolvency is a position in which you are not able to pay off debts as people or institutions come to collect on them.
- This differs from Balance Sheet insolvency, which is a condition of negative net assets (essentially meaning that you owe more than you own).
How Insolvency is Dealt With
Historically, being insolvent was a much gloomier prospect than it is today. In the past, most people in this situation faced the legal response of liquidation of their assets and the dissolution of the insolvent institution.
These days, legislation is geared more toward restructuring of the company to best divert crippling outcomes for partners or shareholders of a business venture. An example of this might be certain provisions of Chapter 11 bankruptcy, which allows some insolvent companies to actually continue operation while dealing with the crisis.
Contact Us
For more information on how to deal with insolvency and a host of related financial issues, contact the experienced Boca Raton bankruptcy lawyers of Eric N. Klein, P.A., today by calling 561-353-2800.
