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I do not think this reflects reality. Companies declare bankrupcies when their negative cash flow exceeds their cash reserves and they cannot put off creditors

I do not think this reflects reality. Companies declare bankrupcies when their negative cash flow exceeds their cash reserves and they cannot put off creditors any further. Until then, they are a going concern. Alternatively, they declare bankrupcy when it will best help their owners. Assets and liabilities do not play much into the calculus. Just my observation from decades of startups and small companies and reading the news.

phire 6y ago
"cash reserves" are on the assets side of the balance. Often in smaller companies and startups they may be the only real asset, so when it runs out, the company is insolvent. The other aspect to liquidation is cashflow. Sometimes companies have plenty of assets on the book to cover their liabilities, but these can't feasibly be sold in a timely manner to pay the creditors who want their money now. If the company is healthy, a bank will be willing to offer a bridging loan. But if the company is less-than-healthy, the only option might be liquidation. I didn't cover this about, because in these cases, the creditors are almost guaranteed to eventually get 100% of their money back.