When would a company declare bankruptcy?

Answer 1

Different countries and jurisdictions have different legal definitions of bankruptcy for a corporation, but most countries employ one or a combination of the following:

• Cash flow bankruptcy, where a corporation is unable to pay its debts as they fall due.
• Balance sheet bankruptcy, where the corporation's assets are worth less than its liabilities.
• Technical bankruptcy, where a corporation is deemed to be bankrupt regardless of its true financial position, eg. because it failed to pay a judgment debt or (in some jurisdictions) pay a statutory demand for money, or formally admitted or filed for bankruptcy.

Even within these definitions, different jurisdictions treat aspects in different ways. For example, in some countries prospective or contingent debts are relevant to determining bankruptcy, and in others they are not. Similarly, some countries require assets to be valued on a market value basis, whereas others are entitled to rely upon book value.

Answer 2

You can file a petition for bankruptcy if you are "balance-sheet bankrupt"; that is, if your liabilities exceed your assets. Alternatively, you can file a petition if you are unable to meet your debts as they come due. Also a few of your creditors can get together and file an involuntary petition on you.