Insolvency refers to a financial situation in which an individual or business is unable to meet its debt obligations as they become due. It occurs when the total liabilities of an entity exceed its assets, or when it does not have sufficient cash flow to pay creditors on time. Insolvency is a critical indicator of financial distress and, if not resolved, can lead to bankruptcy or liquidation proceedings.

There are two main types of insolvency: cash-flow insolvency and balance-sheet insolvency. Cash-flow insolvency occurs when an entity has assets but lacks liquid funds to pay immediate debts. Balance-sheet insolvency happens when the total liabilities exceed the total value of assets, indicating a more serious financial imbalance.

In India, insolvency resolution is governed by the Insolvency and Bankruptcy Code (IBC), 2016. This law provides a structured framework for resolving insolvency cases of individuals, companies, and partnership firms within a specific timeline. The process typically involves appointing an Insolvency Resolution Professional (IRP) who manages the debtorís assets, assesses claims from creditors, and works toward a resolution plan approved by the National Company Law Tribunal (NCLT).

The objective of insolvency proceedings under IBC is to either revive and restructure the company or, if revival is not feasible, to liquidate its assets in an orderly manner to repay creditors. The law emphasizes time-bound resolution to preserve asset value and maintain business continuity wherever possible.

Insolvency impacts not only the debtor but also creditors, employees, and investors. Early identification and professional management of financial distress can help prevent escalation into bankruptcy. Strong corporate governance and prudent financial management are key to minimizing insolvency risks.

In conclusion, Insolvency is a serious financial condition that signals the inability to repay debts, but with proper legal and financial intervention, it can often be resolved through restructuring or settlement mechanisms under Indiaís IBC framework.