insolvency

insolvency, n.

1. The condition of being unable to pay debts as they fall due or in the usual course of business.

2. The inability to pay debts as they mature.

— Also termed failure to meet obligations; failing circumstances. See BANKRUPTCY(2). Cf. SOLVENCY.

balance-sheet insolvency. Insolvency created when the debtor’s liabilities exceed its assets. • Under some state laws, balance-sheet insolvency prevents a corporation from making a distribution to its shareholders.

— Also termed balance-sheet test.

equity insolvency. Insolvency created when the debtor cannot meet its obligations as they fall due. • Under most state laws, equity insolvency prevents a corporation from making a distribution to its shareholders.


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