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Insolvency refers to the situation where an individual or company cannot meet its financial obligations as they come due.

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Insolvency can be cash-flow insolvency (unable to pay debts when they fall due) or balance-sheet insolvency (having more liabilities than assets on the balance sheet). It is a critical financial state that can lead to bankruptcy, where legal proceedings may restructure or liquidate the company's assets to pay off creditors. Insolvency is a significant concern for creditors and can affect the company's ability to raise capital.
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