A company is insolvent if the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.
When it gets to that point, the company usually takes the decision to go out of business. However, it simply cannot close its doors the moment it makes that decision. A company has to take time to end its relationships and handle obligations it has to various stakeholders before it can officially close.
What is Insolvency?
Insolvency is the inability of a debtor to pay his debts as and when they fall due. It applies to either an Individual or a Company.