Insolvency is the state of being unable to pay the money owed, by a person or by his company on time and the person is said to be insolvent. Insolvency is a term for when an individual or an organization can no longer meet its financial obligations to its lenders as debts that become due. Insolvency is likely to be involved in formal arrangements with creditors, such as setting up alternative payment arrangements. Insolvency can arise due to poor management of the company, a reduction in cash inflow, or an increase in expenses. Insolvency is a state of financial distress in which person or his company is unable to pay the debts incurred by them and that can lead to insolvency proceedings, in which legal action is taken against the insolvent entity(the person or his company) and assets may be liquidated to pay off outstanding debts which the person or his company holds. The sole reason for insolvency in a company is due to its poor cash flow and due to a not well designed corporate governance plan of the company. When a business becomes insolvent, this means that their debts (liabilities) are greater than the value of their assets and income of that company. In effect, they are not able to pay back money owed, either currently or in the future. A company can be insolvent even if their assets outweigh their liabilities if the assets are not easily converted to cash needed for the company to make the necessary payments for the debts that are incurred by the person himself or his company.

Factors contributing to the insolvency

1. The company’s hiring of inadequate accounting process or managing process may contribute to insolvency.
2. The lack of expertise in the commercial that leads to poor governing of business or the company can lead to insolvency.

3. Lack of knowledge relating to the running of the business can lead to the insolvency of the company.

4. The insolvency can occur due to the poor cash management of the company

1. The insolvency in a company can occur due to incurred Debt by the company.
2. The company can become insolvent if there's the poor financial management of the company.
3. The company can become insolvent if the company has an underrated competition in the market
4. If the venture or the goal set by the company is unrealistic can lead to a complete failure in achieving of the goal by the company. That can lead to the insolvency of the company or the entity.