Businesses are just like real people, and have ups and downs with these fluctuations tied to the economy and performance of the company. One such situation which is definitely a ‘down’ component is when a company is about to enter the stage of insolvency. No businesses want to end up at a stage of insolvency but poor management decisions, reckless investment strategies and new technology and more such factors can result in a company losing its market share and subsequent losses.
Some business owners, perhaps under the stress of debts and insolvency would quickly move on to the point of declaring the business as being bankrupt while other more strategic company folk might want to do all that is possible to save the business from extinction. That is when key people involved in a falling business reach out to an insolvency service to help them out of this sticky financial situation they find themselves in.
Insolvency And Bankruptcy
The problem with the terms insolvency and bankruptcy is that lot of people are of the assumption that one equals another. Lot of people simply uses both of these interchangeably and that sends the wrong impression to the lay man who may not understand these financial terminologies. While it is true that insolvency will eventually lead to bankruptcy if not taken care of, there have been a lot of businesses which have reached the point of insolvency but have successfully avoided becoming bankrupt.
Allow us to elaborate on these two, often confused terms. With insolvency we are looking at the financial state of the company where in it is simply not able to pay all the debts that it owes to its creditors. The creditors could be banks which have loaned money to the company, it could be bills related to energy suppliers and so on. Bankruptcy is what happens when the courts decide that the company is pretty much out of business and there is no way it is going to pay any of these dues.
The Two Types
When it comes to insolvency, we have two types of insolvencies to discuss. The first one is the cash flow insolvency which happens when the company simply does not have the money to pay the entities that it owes money. The other type of insolvency is when the total assets of the company are less than the total debt that the company owes. This one is called balance sheet based insolvency and of the two this is the most problematic situation to be in.
The two situations are equally complicated and getting out of it requires unique strategies, something which the insolvency service companies are good at. The insolvency service folks will come in and understand the various methods that can be used to help the company come out of the stage of insolvency and do it before time runs out and the courts declare the company bankrupt.
Insolvency experts, having done this in the past are able to use their expertise to find a solution to avoid a situation of bankruptcy.
Keep yourself abreast of the popular insolvency news and other happenings around the world economy at http://insolvencynews.com.au/mortgage-delinquencies/.
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