Insolvency: not enough money to pay your bills. The value of assets is less than the value of liabilities
- Can result in legal action (as much of the assets are sold to cover the debts) How you get into insolvency
- spending too much
- Debtors (trade customers) taking too long to pay
- Loss of customers (your product isn’t competitive)
- Financial mismanagement
- Global and local supply chain issues meaning you can’t sell products Solution to insolvency: declare bankruptcy (aka receivership or corporate liquidation)
- You say you can’t pay your bills. The business entity collapses
- When you declare bankruptcy, you don’t have to pay your debts and they no longer accrue interest
- for limited liability companies: do not have to pay debts (since they have limited liability). But they don’t get money off of the selling of the business unless all debts are paid, and they receive the funds last
