Consider the following 1 lsquo Insolvency rsquo is the situation when the liabilities of a firm exce...........

Economic Affairs Industrial Sickness

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Consider the following;

1. ‘Insolvency’ is the situation when the liabilities of a firm exceed its assets.

2. ‘Bankruptcy’ is the situation when the liabilities of a firm cannot be paid from its assets.

Which of the above statements is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Insolvency is not the same as bankruptcy. Insolvency is a state of economic distress, whereas bankruptcy is a court order that defines how an insolvent debtor will meet his or her obligations and/or have assets liquidated (sold) to pay the creditors.

! So an individual or company can be insolvent without being bankrupt — especially if the insolvency is temporary and correctable — but not the opposite. However, insolvency can lead to bankruptcy if the insolvent party is unable to successfully address its financial condition.

insolvency is a state where the liabilities of an individuals or an org. exceeds its assets and the entity is unable t raise enough cash to meet its obligations or debts as the become due.

Insolvency vs. Bankruptcy