Insolvency Law governs aspects of financial debt. Insolvency occurs when a company is no longer able to pay debt due.

The two main types are that of the inability to pay debt when due and is thus related cash flow problems and balance sheet insolvencies when the liabilities of a company far exceed the assets.

According to Insolvency Law a company that has illiquid assets and thus a positive balance sheet, but is unable to pay the short term debts is thus in a cash flow insolvency state.

When a company’s assets fall into a negative state where the liabilities become more than the assets, the company can still have enough cash flow for day-to-day running, but not to pay off the long-term debt.

One should understand that bankruptcy is not the same as insolvency. According to the law, bankruptcy occurs when a court determines that the insolvent state cannot be resolved without legal actions and thus declares a company bankrupt.