What is the zone of insolvency?
The zone of insolvency is the financial state of a company that is approaching insolvency — unable to meet its obligations as they come due or balance-sheet insolvent — but not yet formally bankrupt. In this zone, directors’ fiduciary duties expand: in many jurisdictions, duties run not only to shareholders but also to creditors, with potential personal liability for trading whilst insolvent.
In Türkiye, the Türk Ticaret Kanunu (Articles 376–377) and the Enforcement and Bankruptcy Law impose specific duties when assets fall below 50% of capital, including board notification, capital restoration plans and bankruptcy filing. U.S. Delaware law similarly imposes “deepening insolvency” considerations on directors.