Insolvency is a legal situation in which a natural or legal person finds themselves when they do not have sufficient liquidity to pay their obligations.
In short, insolvency is the impossibility of a person or company to pay their debts.
With FacturaDirecta, your company will have a professional invoicing system. Create an account.
In a company, insolvency occurs when in its accounting, current assets are less than current liabilities. That is, the company does not have enough money at that time to pay its debts.
When is a company insolvent?
According to bankruptcy law, a company is insolvent when:
There are payment obligations and compliance with those obligations has ceased definitively, completely and not sporadically (that it is not a specific fact).
There are embargoes for pending executions that affect the company’s assets.
There is a hasty liquidation of the company’s assets.
Tax obligations are breached or payment of Social Security quotas.
(…).
Careful! When a company is insolvent, it is not freed from the obligation to pay its debts.
The insolvency situation of a company obliges it to declare suspension of payments, where the company notifies its creditors that it cannot pay its debts due to lack of liquidity and takes measures to resolve its obligations little by little.
Consequences of declaring insolvency
When a company declares insolvency, it has to request creditors’ meeting within a maximum period of two months.
First, it must make the application for business insolvency so that the competent judicial authority makes an exhaustive study of the company’s situation and can determine that it really does not have sufficient assets to face its debts.
The creditors’ meeting will provide longer debt repayment terms or delay judicial processes that the company may have.
The company’s reputation will also be affected, lowering its credibility and being left without guarantees when, for example, requesting credits.
These are some of the consequences of insolvency.
We hope this information is very useful to you.