What is insolvency?
The situation a company or individual faces when they're unable to cover their debt repayments and other financial obligations. In the business world, companies often become insolvent due to cash flow issues or because of poor financial management.
Key takeaways
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Insolvency occurs when companies or individuals cannot cover debt repayments and financial obligations, often caused by cash flow issues or poor financial management.
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Major UK retailers including Woolworths and BHS have experienced insolvency since the 2008 credit crunch, demonstrating its impact on high street brands.
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Companies facing insolvency can either be rescued or wound down through procedures including Company Voluntary Arrangements, administration, administrative receivership, or liquidation.
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Common triggers for business insolvency include sudden supplier cost increases, expensive legal action, or failure to adapt to changing customer demands.
Where have you heard about insolvency?
A number of major insolvencies have been seen on the UK high street since the credit crunch of 2008. Woolworths and BHS are among the big-name retail brands that have been affected.
What you need to know about insolvency.
Depending on the severity of a company's financial position, it can either be rescued or wound down after entering insolvency. Common insolvency procedures include Company Voluntary Arrangements, administration, administrative receivership and liquidation.
A business may face the prospect of insolvency in the event of a sudden increase in its supplier costs, or if expensive legal action is taken against it. The problem can also arise when a brand fails to keep pace with the changing demands of its customers, losing their loyalty as a result.
Find out more about insolvency.
For more on the root causes of insolvency, check out our debt-to-assets ratio and liability definitions.