Insolvency refers to the permanent inability of a debtor to meet its payment obligations as they fall due.
Insolvency can be triggered by various causes, such as a weak economy, a decline in demand or wrong decisions by the management. In the event of insolvency, the debtor can no longer serve its creditors and must usually initiate insolvency proceedings. In this process, the debtor's assets are liquidated or restructured in order to satisfy the creditors. The aim of the procedure is to achieve a fair distribution of the assets among the creditors and to free the debtor from his debts.
Insolvency usually has far-reaching consequences for the debtor. He loses control over his assets and business, and his reputation can be severely damaged. He may also find it difficult to take out loans or establish business relationships in the future.
For the creditors, insolvency is also a difficult situation. They usually have to accept losses and have limited possibilities to recover their money. However, in insolvency proceedings they also have the right to assert their claims and to participate in the debtor's assets.
