Corporate insolvency refers to a situation where a company is unable to meet its financial obligations as they come due. This means the company lacks sufficient cash flow or assets to pay off debts owed to creditors. Insolvency is a critical financial condition that often requires intervention through restructuring processes to resolve.
When a company becomes insolvent, it may pursue various legal processes depending on the jurisdiction, including:
Voluntary administration: A process aimed at rescuing the company or achieving a better return for creditors than immediate liquidation.
Liquidation: A formal process to wind up an insolvent company’s affairs, transferring control to a liquidator who manages its operations and debts.
Receivership: A process where a receiver is appointed to recover funds for a secured creditor.
Small business restructuring: Small business restructuring halts certain creditor actions while allowing directors to maintain control as a practitioner oversees the process, develops a plan, and manages creditor interactions.
Members' voluntary liquidation: Winding up a solvent company when its directors believe that the company can pay all its existing debts in full within 12 months.
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