Insolvency And Liquidation

By Author: Paul Smythe
Total Articles: 10
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When the market enters into a state of long-term equilibrium or takes a steep fall downwards, the efficient firms will be forced to sell its products and services at a lower price to ensure its sustenance and survival. On the other hand, those business entities run by poor management that was struggling before the downturn of the economy, will be forced to make a compromise or even an exit, depending on the actual state of its financial position.

When the financial position of the companies is hit badly, they may be unable to meet their liabilities. A situation wherein the fair market value of its asset is incapable of meeting its liabilities or where the company is unable to pay out the money due to the creditors, it is termed as insolvent. Insolvent business entities are to be dealt by the insolvency practitioners who possess the knowledge and understanding of how to assist these companies to make a turnaround from its current position. These insolvency practitioners advice on the restructuring of the entity, and remain abreast on the measures to be employed for filing bankruptcy or in worst cases, for liquidation.

Insolvency ...
... can occur on account of a myriad of reasons. Typically, poor management of the company can be termed as the cause for insolvency. Sometimes the failure of the business entity to move with the demands set by the changing market may result in the fall of sales. This place a restriction on the financial state of affairs. On a larger perception, the fall in the economy or the industry can be pointed as the causes for insolvency.

A company that is insolvent can file for bankruptcy in the court of law. Either the company itself, or the creditors or the shareholders based on a Special Resolution submitted to the Registrar of the Companies hold chances for declaring it bankrupt. Depending on the impact the closure of the business entity will have on the general economy of the state, the government may take measures to assist in its revival. GM is one such company that had recently filed for bankruptcy with the U.S. Treasury holding 61 percent of the stake in the automaker.

The creditors of an insolvent company may be willing to forgo a portion of the money due to them or perhaps be prepared to extend the date of final settlement with the intention of offering the business entity a chance to make a comeback. But, if the prospect of the business continuity does not hold good, it might get liquidated with the assets redistributed to the various parties.

The author of this article has dealt with many Debt Problems. Being an Insolvency Practitioner the author writes great articles on Liquidation and insolvency.