Insolvency means a company’s inability to pay its debts on time. For example a company has a loan repayment due in next few months but it does not have sufficient cash or means to repay its debts. There are several reasons for a company or a person become insolvent. The business might not be able to generate cash as the product has become obsolete and sales are poor.
It can also be caused by poor cash management techniques, such as loose credit collection controls. When a company or a party is declared as insolvent, business assets or personal property is sold to recover the amount of liabilities.
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