Advice

Dealing with financial distress and insolvency

By Shane Williamson and Nell McGill
July 6 2024 - 12:00pm
Dealing with financial distress and insolvency
Dealing with financial distress and insolvency

What is insolvency?

A company is solvent if it can pay all of its debts as and when they fall due. Therefore, insolvency is defined by the inverse - an inability to pay all debts as and when they fall due. To be insolvent, there must be more than a temporary lack of liquidity, where a company may not have enough cash or other assets to meet its short-term obligations. It is necessary to look at a company's financial position, considering commercial realities, to determine if the company's liquidity issue is temporary, or if it is genuinely insolvent.

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