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How do you know if a company (or an individual) is insolvent?

There are two tests for a company being insolvent:

 

(i)             The company is unable to pay its debts as they fall due - this is known as “cash-flow insolvency” or “commercial insolvency”; or

(ii)            The company’s liabilities (including future and contingent liabilities) exceed its current assets - this is known as “balance-sheet insolvency”.

 

Where an insolvent individual is “unable to pay its debts as they fall due” that individual is insolvent.  Individuals are made bankrupt when a bankruptcy order is made against them by the court.

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