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.
