Insolents are those people or a company who are in a state in which they are unable to pay the debt on the specific time or date because they do not have money. This state is known as insolvency. There are two type of insolvency one is cash-flow and the other is balance-sheet insolvency.
There are times when people do have enough possessions to pay the debt but not in the liquid form so that can be used on the specific time. May be a person or company owns property or other valuables but cash money to be paid on due date, and this state is known as cash-flow insolvency. This issue can be resolved by negotiating with the person to whom one owes the debt. The collector can wait for the property or other means of money to be sold, for that the collector can demand some penalty for late payment.
The state, in which the debtor do not have any assets to be sold to pay the debt or any liquid money as well, is known as balance-sheet insolvency. There is a chance for the person or the company to be bankrupted but it is not unavoidable. If all the companies come to agree with the loss and the negotiations the bankruptcy can be prevented.
It is possible for the company to left some money to pay the next bill on time but some governments have law against it. They will not let the debtor pay the debt unless all the creditors get benefitted. If a farmer is the debtor, he can hire workers for harvesting with the money he got because if he paid the money he will not be able to harvest and sell the crops and that will be worst for creditors.
Some people or writers have suggested using the terms of technical insolvency or actual insolvency for both forms to be clearer about the situations.
Balance sheet or technical insolvency are synonyms but actual or cash-flow is not because when one talks about cash-flow it actually means that the company has other assets to pay the debt.
The main focus of the modern law enactment and business debt organizational practices is not the same as it is in the past, they were keen to get the business to bankruptcy or exclude all the assets but now they try to reform the business by remodeling the financial and managerial arrangement of the company which is in debt so that it can be continued and pay his loan. In some state the law gets offensive if the insolvent company keeps running but other allow the company to be continued till the alternatives can be workout.
There are professional practitioners who can deal with cases like these and they are very much cheap and best way than bankruptcy by debt restructurings which allows company or the individual to renegotiate so that the liquidity can be restore to keep the company running.
Debt restructurings are typically handled by professional insolvency and restructuring practitioners, and are usually less expensive and a preferable alternative to bankruptcy.