Also known as: insolvent · insolvents · insolvencies
Written by attorneys · grounded in primary & secondary sources — see below
The financial condition of a debtor unable to pay debts as they become due in the ordinary course of business. This condition also arises when liabilities exceed assets under a balance-sheet test.
Vivienne formed Apex Advisory LLC with minimal capital and commingled client funds in her personal account. After high-risk trades rendered the LLC unable to meet obligations, Ralph sued for losses. The court weighed the LLC's insolvency along with undercapitalization and fund siphoning to disregard the entity and impose personal liability.
Fibreboard faced massive future asbestos claims against limited insurance assets. Plaintiffs sought a class settlement treating the coverage as a limited fund. The Court examined whether projected insurer insolvency would leave insufficient resources to pay all claims, requiring careful valuation before approving the arrangement.
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A bankruptcy trustee sued Granfinanciera to recover allegedly fraudulent transfers made by an insolvent debtor. The recipient demanded a jury trial on the claims. The Court considered whether the insolvency proceeding context altered the right to a jury when the estate sought to augment assets.
Two Philadelphia banks proposed a merger that would concentrate significant local deposits. Regulators challenged the deal under antitrust law. The Court assessed whether the resulting entity's market power could lead to insolvency risks for smaller competitors or reduced services in the region.
Investors relied on Arthur Young's audit opinions when purchasing shares in a company that later collapsed. The firm argued it owed no duty to nonclients. The court evaluated whether the company's insolvency at the time of the audit altered the scope of professional liability for foreseeable harm.
Homeowners facing foreclosure during the Depression sought extensions under a state moratorium statute. Lenders argued the law impaired contract rights. The Court weighed whether temporary relief from payment obligations during widespread insolvency conditions justified the impairment to stabilize the economy.
Equity insolvency exists when a debtor cannot pay debts as they mature in the ordinary course. Balance-sheet insolvency exists when liabilities exceed assets. Both prevent certain corporate distributions under state law and factor into veil-piercing or receivership analyses.
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Insolvency of the corporation is one factor in the totality-of-circumstances test for piercing. Courts consider it alongside undercapitalization, commingling, and failure to observe formalities when deciding whether the entity was merely a facade for the dominant shareholder.
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Yes. When damages would be uncollectible because the breaching party is insolvent or heavily encumbered, courts treat that fact as weighing in favor of specific performance because a money judgment would be inadequate in practice.
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Under UCC Article 2 a seller may stop delivery upon discovering the buyer's insolvency. The right applies to goods in transit and larger shipments even without repudiation, allowing the seller to reclaim or withhold performance.
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…given the Delaware Chancery Court a new kind of remedy. The statute authorized the Chancellor to appoint a receiver for an insolvent corporation upon the application of an unsecured simple contract creditor. Suit was brought in a federal equity court under diversity jurisdiction. Although traditional equity notions do…