Insolvent is a person or company who is unable to pay his debt. In clear words, a person or company has not enough money or asset for paying the whole debt. Assets are less than liabilities is capital. But due to losses, it may possible, company or that person is working on zero capital. At that time, risk of insolvency may occur when creditors demand their money. If company gets loan from outside by his goodwill in market, then that company can save from winding up or insolvency. Otherwise, court declares company as insolvent. The situation of a sole trader is different. Sole trader can use his personal assets for paying his business loan. If the total of business assets and personal assets are less than his total liabilities, at that time, he can become insolvent.

After declaring insolvent, all assets are captured by liquidator. He is appointed by court and he sells his all assets in market place or sell his whole business to other trader at fixed cost. After this, he pays his govt. dues. Then, he pays his secured loan and in last balance amount is divided among all unsecured creditors.



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Education : Insolvent
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