A person or company is insolvent if they're unable to pay their debt. This means either that they can't pay debts that are due immediately and/or that they do not have any prospect of paying those debts that will become due in the reasonably near future.
Bankruptcy and liquidation (or winding-up) are processes that respectively deal with the insolvency of individuals and companies (including other types of organisation, such as limited liability partnerships, although this guide only deals with the basic position for companies).
There are 2 main ways a bankruptcy order can be made:
To avoid bankruptcy an insolvent debtor can instead use alternative procedures such as:
There are different types of liquidation:
At the end of a liquidation, the company will be dissolved.
There are alternative procedures for dealing with a company's debts that may allow the company to continue as a going concern.