TLDR:
Insolvency is the state in which a company or individual cannot meet their financial obligations when due, either because liabilities exceed assets (balance sheet insolvency) or because they lack cash to pay debts as they come due (cash flow insolvency).
Insolvency vs. Bankruptcy
Insolvency and bankruptcy are related but distinct concepts. Insolvency is the financial state of being unable to pay debts — it’s an economic condition. Bankruptcy is a legal process — a formal court proceeding initiated to address insolvency. A company can be insolvent without having filed for bankruptcy, and the board has ongoing duties once insolvency is suspected. In many jurisdictions (US, UK, Australia), once a company becomes insolvent, directors’ fiduciary duties shift from shareholders to creditors — continuing to incur debts when insolvent can expose directors to personal liability for wrongful or fraudulent trading.