Legal Speak Made Easy

“Insolvency”, “Liquidation” or “Bankruptcy”?

Commonly confused, these terms are usually encountered in the context of debtors who are unable to pay their debts. An individual’s or trust’s estate is “sequestrated” and a “trustee” appointed to sell the insolvent estate’s assets and to distribute the proceeds according to legal principles. A similar (but not identical) process applies to corporate entities like companies, but in this case the entity is “liquidated” or “wound up”, with a “liquidator” being appointed. To complicate matters, the term “bankruptcy” is often used loosely in both of the above scenarios - but the good news is that only lawyers really need to know the difference!