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LSDefine
Simple English definitions for legal terms
equity insolvency
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A quick definition of equity insolvency:
Equity insolvency is a situation where a company cannot pay its debts on time. This means that the company owes more money than it has. When a company is equity insolvent, it is not allowed to give any money to its shareholders. This is because the company needs to use all its money to pay off its debts first.
A more thorough explanation:
Equity insolvency is a type of insolvency where a debtor is unable to meet its obligations as they become due. This means that the debtor cannot pay their debts on time or in the usual course of business.
For example, if a company owes money to its suppliers and cannot pay them on time, it is considered to be equity insolvent. This type of insolvency prevents the company from making any distributions to its shareholders.
Another type of insolvency is balance-sheet insolvency, which occurs when a debtor's liabilities exceed its assets. This type of insolvency also prevents a corporation from making distributions to its shareholders.
It is important to note that insolvency is different from bankruptcy. Bankruptcy is a legal process that allows a debtor to restructure or eliminate their debts, while insolvency simply means that the debtor cannot pay their debts.