Insolvency is a financial condition where an individual or company is unable to pay its debts when they become due.
Insolvency occurs when liabilities exceed assets or when there is insufficient cash flow to meet obligations. It is an early stage of financial distress and may lead to bankruptcy if not resolved.
In India, insolvency cases are governed by the Insolvency and Bankruptcy Code 2016, which provides a structured process for resolving or liquidating distressed entities.
"A company cannot pay its loan EMIs due to cash shortage—this is insolvency."