Insolvency

Insolvency means being unable to pay your debts. For a company, this essentially means that there is a deficit in your balance sheet; your tangible assets are less than your liabilities, and your business does not generate sufficient surplus revenue to fill the gap. If you have surplus assets in your balance sheet but are making losses, you become insolvent when the losses will consume the surplus assets. Solvency is measured in the context of voluntary winding-up and similar procedures when the directors can declare that the company will be able to pay its debts as they fall due for the next twelve months.