Insolvency often interchangeably referred to as bankruptcy indicates a scenario where the businesses are unable to cover up the debts and the overdrafts from the market exceed the sales. The outcome – the firms are forced to either file bankruptcy or are forced by creditors to dilute and cover the outstanding.
Then the issue that has gained much more speculation in this sphere is the difficulty faced by younger firms, typically in their growing stages. Well this can be attributed to the fact that newer firms typically demand higher cash out flow and promise minimal returns (at least in the initial time frame). The investments far surpass the promised revenue. What is than important is the careful planning before getting oneself into such troublesome environment. Even small mismanagement or lack of strategic planning at the initial stages can certainly lead to the undesirable situation name insolvency or bankruptcy.
Another observation closely related to this scenario is lack of apt supervision and planning. Various powers tend to over rely on their managerial group and thereby end up in situations where the most important decisions are not tendered to as carefully as they deserved.
The observation: “look closely”.
Bankruptcy / Insolvency
Bankruptcy applies to individuals while the latter refers to companies. Sole traders and individuals who have given their personal guarantees also fall within the bankruptcy net. Various countries have different rules in both scenarios. The charges are less stringent in case it can be proved that the owner is not responsible for the failure in their personal capacity. In such cases, the owner can be discharged in less than 12 months.
The key implications in such eventualities include lack of control over assets, impact on the overall credit that can be obtained from market, and other few legal restrictions like getting elected as a member of parliament.