What is “Balance Sheet Insolvent?”

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One of the requirements for a corporation to enter bankruptcy in Japan is that it be “balance sheet insolvent.”  Balance sheet insolvent means that even if the corporation has assets on hand, it cannot make full payment to all of its creditors even by selling all of its remaining assets.  In essence, the company’s debt outweighs its assets.

Therefore, even if a company may seem financially stable on the surface, if its debt is large enough, it may still be on the brink of bankruptcy.  Depending on the company’s level of debt, having a functioning factory, real property and other assets may not be enough to balance out the responsibility to the company’s creditors.

If you have any questions about contracts with a bankrupt company please contact our office for a legal consultation.