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LSDefine
Simple English definitions for legal terms
failing circumstances
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A quick definition of failing circumstances:
Failing circumstances refer to a situation where a person or a company is unable to pay their debts on time or in the usual way. This is also known as insolvency. There are two types of insolvency: balance-sheet insolvency, which happens when a person or company's liabilities are greater than their assets, and equity insolvency, which happens when they cannot meet their obligations as they fall due. When a company is insolvent, it may not be able to distribute money to its shareholders.
A more thorough explanation:
Failing circumstances refer to the condition of being unable to pay debts as they fall due or in the usual course of business. It is also known as insolvency.
- Balance-sheet insolvency: This happens when a debtor's liabilities exceed its assets. For instance, if a company owes more money than it has in assets, it is considered balance-sheet insolvent. This type of insolvency prevents a corporation from making a distribution to its shareholders.
- Equity insolvency: This occurs when a debtor cannot meet its obligations as they fall due. For example, if a company cannot pay its bills on time, it is considered equity insolvent. This type of insolvency also prevents a corporation from making a distribution to its shareholders.
These examples illustrate how failing circumstances or insolvency can affect a company's ability to pay its debts and meet its obligations. When a company is insolvent, it may have to file for bankruptcy or restructure its debts to avoid going out of business.