Legal Definitions - failing circumstances

Failing circumstances refer to the condition of being unable to pay debts as they fall due or in the usual course of business. It is also known as insolvency.

• Balance-sheet insolvency: This happens when a debtor's liabilities exceed its assets. For instance, if a company owes more money than it has in assets, it is considered balance-sheet insolvent. This type of insolvency prevents a corporation from making a distribution to its shareholders.
• Equity insolvency: This occurs when a debtor cannot meet its obligations as they fall due. For example, if a company cannot pay its bills on time, it is considered equity insolvent. This type of insolvency also prevents a corporation from making a distribution to its shareholders.

These examples illustrate how failing circumstances or insolvency can affect a company's ability to pay its debts and meet its obligations. When a company is insolvent, it may have to file for bankruptcy or restructure its debts to avoid going out of business.