The Buitt

POINT 1

The explanation of the concept of insolvency:

Insolvency is the inability of a debtor to pay their debt. In many sources, the definition also includes the phrase "or the state of having liabilities that exceed assets"(Graeme Pietersz. "Moneyterms Investment Definitions)无力偿付与破产相关但是不同。破产指法律确定的无力偿付和相关的破产解决方式。通常债务方发现无力偿付而申请破产保护；或债权方把债务方带上法庭企图强迫偿付或扣押债务方财产。

Cash flow insolvency involves a lack of liquidity to pay debts as they fall due. Balance sheet insolvency involves having negative net assets—where liabilities exceed assets. Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency.(Wikipedia) A business can be cash-flow insolvent but balance-sheet solvent if it holds market liquidity assets, particularly against short term debt that it cannot immediately realize if called upon to do so. Conversely, a business can have negative net assets showing on its balance sheet, making it balance-sheet insolvent, but still be cash-flow solvent if ongoing revenue is able to meet debt obligations, and thus avoid default: for instance, if it holds long term debt. Some large companies operate permanently in this state.

Considering the first definition of insolvency ("Insolvency is the inability of a debtor to pay their debt."), this situation of ongoing balance-sheet insolvency with cash-flow solvency obviously does not qualify as "insolvency" defined that way. It has been suggested (for instance by Graeme Pietersz of Moneyterms) that the speaker or writer should either say technical insolvency or actual insolvency in order to always be clear - where technical insolvency is a synonym for balance sheet insolvency and actual insolvency is a synonym for the first definition of insolvency ("Insolvency is the inability of a debtor to pay their debt.").

The explanation of bankruptcy

1. Bankruptcy is a legal status of a person or other entity that cannot repay the...