Template:Insolvency v bankruptcy capsule
“Insolvency” is an oddly nebulous financial status — essentially that one cannot meet one’s debts as they fall due (cashflow insolvency), or one’s liabilities exceed one’s assets (balance-sheet insolvency) — while “bankruptcy” is a legal one: formal steps have been taken to administrate a legal entity or wind it up.
An insolvent entity may file for bankruptcy or its creditors may petition for it. But it need not.[1] The water is further muddied because notable contracts such as the ISDA Master Agreement conflate them: its definition of “Bankruptcy” includes measures of formal legal bankruptcy,[2] measures of financial insolvency[3] and some that are a bit of both.[4]
- ↑ Indeed, it is not unheard of for a solvent entity to file for a “strategic bankruptcy”. But let us not get distracted.
- ↑ You really want to do this? Okay: Section 5(a)(vii) limbs (1) (Dissolution), (4) (Institution of bankruptcy proceedings), (5) (Winding-up resolution), (6) (Appointment of administrator) and parts of (8) (Analogous events)
- ↑ Section 5(a)(vii) limbs (2)(Cashflow insolvency and arguably balance sheet insolvency too) (3) (Composition with creditors)
- ↑ Section 5(a)(vii)(7) (Enforcement of security)