Insolvency is not failure.
It is the moment before the decision.

The two legal tests

England & Wales insolvency law uses two tests, and a company can fail either one.

• Cash flow test. The company cannot pay its debts as they fall due. It may have assets on paper, but the money is not there when the bill arrives. Most companies fail this test first.
• Balance sheet test. The company's liabilities exceed its assets. Negative net assets on the filed accounts are this test in one line.

Failing either test makes a company insolvent in law. Insolvency itself is not an offence and not the end of the company: it is the condition that triggers the formal options.

What insolvency leads to

Once a company cannot pay, one of several routes usually follows. The directors may restructure and trade on. A creditor may force the issue with a winding-up petition. Or the company may enter a formal process. Each has its own guide here:

• Administration vs liquidation: rescue attempt versus ending the company.
• Company voluntary arrangement: a negotiated deal with creditors to keep trading.
• What happens after a winding-up petition: the court route a creditor takes.

Insolvency is not the same as closure

A company can be insolvent and still trading, sometimes for months. Conversely, a solvent company can be dissolved. The distinction matters when you are reading a profile: status Active with negative net assets is a company that is legally insolvent but still operating. That is exactly the window where credit decisions need the most care, and where the early signals are most valuable.