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Inability of an individual or company to pay debts as they fall due. This may lead an individual to become bankrupt, or a company to go into liquidation. In either case a trustee in bankruptcy or liquidator is appointed by a court to realize the available assets and pay off the debts so far as possible. An individual or business may be unable to pay debts because of illiquidity rather than inadequate assets: if the assets are, in fact, sufficient, creditors may eventually be paid in full. If creditors can be persuaded of this, insolvency can be avoided by rolling over old loans, or taking out new loans to pay off the old ones. It is an offence to trade when insolvent.

Subjects: Economics.

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