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I've never heard this interpretation of bankruptcy. What I have heard is it's used when an entity can't repay their debts. This is not equivalent to liabilitie
by enkid 6y ago
I've never heard this interpretation of bankruptcy. What I have heard is it's used when an entity can't repay their debts. This is not equivalent to liabilities being one dollar larger than their assets. Normally, bankruptcy doesn't dissolve the entity, it just restructures the debt. Dissolving the company can be done without bankruptcy and I believe is the process you are talking about when a company is fully solvent, but is wrapped up.
- phire 6y agoIn the US, there Chapter 11 Bankruptcy (which is restructuring, as you say) and Chapter 7 Bankruptcy which is the liquidation due to insolvency that I describe here. Where I live, there is no formal equivalent to Chapter 11, and liquidation is colloquially known as Bankruptcy. While the terms may vary, the accounting and the general laws are reasonably constant world-wide.
- enkid 6y agoChapter 11 is a form of bankruptcy that leads to dissolution, but it is not the only way to dissolve an entity. In other words, dissolution can be caused by bankruptcy among many other ways. One of these is paying off all creditors and shareholders. Since this does not require debt restructuring, it would not require bankruptcy.