insolvency

play
noun in·sol·ven·cy \(ˌ)in-ˈsäl-vən(t)-sē, -ˈsȯl-\
Updated on: 26 Jul 2017

Definition of insolvency

  1. :  the fact or state of being insolvent :  inability to pay debts

Examples of insolvency in a Sentence

  1. unless the economy improves, many resorts in the area face insolvency

Recent Examples of insolvency from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'insolvency.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of insolvency

1660


Financial Definition of INSOLVENCY

insolvency

What It Is

In most usages, insolvency is the inability of a company or individual to meet its financial obligations as they come due. In the legal sense of the word, an entity is considered insolvent if its total liabilities exceed its total assets.

How It Works

Entities most commonly become insolvent by taking on too much debt. For example, a company with a heavy debt load may find itself unable to cover its debt liabilities should its business slow.

In this case, the company must raise capital to pay its obligations via selling assets, borrowing, or somehow raising capital and/or reducing expenses.

If a company cannot meet its obligations, it may be forced to file for bankruptcy.

Why It Matters

Insolvency in public companies may continue to trade while restoring their financial health, but represent some of the riskiest investments on the market. Insolvency is a red flag for investors since it can lead to bankruptcy or the evation of assets in order to meet debt payments.


Law Dictionary

insolvency

play
noun in·sol·ven·cy \in-ˈsäl-vən-sē\

Legal Definition of insolvency

plural

insolvencies

  1. 1 :  the fact or state of being insolvent — compare bankruptcy

  2. 2 :  insufficiency (as of an estate) to discharge all enforceable debts

Additional Notes on insolvency

Insolvency matters are covered under the Bankruptcy Code.



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