Legal Definitions - solvabilité

Solvabilité is the French legal term for solvency. Solvency refers to an individual's or organization's ability to meet all their financial obligations and debts as they become due. It signifies a healthy financial state where assets exceed liabilities, or at least where there are sufficient liquid assets to cover immediate and foreseeable debts.

• Example 1 (Corporate Financial Health): A regional airline, "Skyways Express," has been experiencing financial difficulties due to rising fuel costs and reduced passenger numbers. Despite owning a fleet of aircraft and airport gate leases (assets), the company is consistently late in paying its aircraft maintenance providers, employee salaries, and bank loan installments. An independent financial review determines that Skyways Express lacks the necessary cash flow and liquid assets to cover its immediate debts, concluding that the company has lost its solvabilité.

  Explanation: This example illustrates solvabilité because Skyways Express is unable to pay its financial obligations as they become due, indicating a critical lack of financial health and an inability to meet its ongoing commitments despite possessing significant long-term assets.

• Example 2 (Individual Loan Application): Mr. Davies, a self-employed architect, applies for a mortgage to buy a new home. The bank reviews his financial records, including his annual income, existing debts (such as a student loan and credit card balances), and savings. The bank determines that Mr. Davies consistently earns significantly more than his current expenses and debt payments, and he has a substantial down payment saved. Based on this assessment, the bank concludes that Mr. Davies demonstrates strong solvabilité and approves his mortgage application.

  Explanation: Mr. Davies's situation demonstrates solvabilité because he possesses the financial capacity – sufficient income and assets relative to his existing debts – to meet his current obligations and take on the new financial commitment of a mortgage, assuring the bank of his ability to repay the loan.