Insolvency is the state of being unable to pay debts as they fall due, or having liabilities that exceed assets. There are two common tests: the cash-flow test (can you pay on time?) and the balance-sheet test (do you owe more than you own?).
What it can lead to
Insolvency does not always mean a business stops. Depending on the situation, options can include restructuring, a formal arrangement with creditors, administration or liquidation. Some routes aim to rescue the business.
Acting early
Directors have legal duties when a company is, or is close to, insolvent. Taking advice early generally widens the options available.
- Cash-flow and balance-sheet tests both matter.
- Insolvency is a state, not automatically an ending.
- Professional advice is important and time-sensitive.
If your company is under financial pressure, contact Credicorp early. We would rather understand the position and discuss it than be the last to know.
See also: Understanding the main business insolvency and rescue options, What is a maturity date? and Funding payroll between customer payments.