Insolvency

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Insolvency

 

the inability of an economic entity such as an enterprise, organization, or other juridical person to ensure paymeny of its fiscal obligations.

In the USSR, enterprises and economic organizations that fail to meet installments on bank loans or omit payments to the state budget and to their suppliers over a prolonged period are classified as insolvent. Insolvency is caused primarily by such shortcomings in economic operations as failure to fulfill production and financial plans or accumulation of excess production stocks. Inadequacies in material-technical supply to the enterprise can also be a cause of insolvency. Delays in receipt of earnings for products sold, unplanned receipt of production stocks, and transportation difficulties can also contribute to insolvency; these are temporary factors independent of the operation of the economic organization.

For capitalist companies, insolvency leads to bankruptcy and to the liquidation of the enterprise; the burden of the unemployment thus caused is ultimately borne by the working people. The socialist state intervenes vigorously in the operation of enterprises that are functioning poorly; while employing economic sanctions and bank audits, it also extends fiscal assistance in order to improve the work of the insolvent enterprise.

O. I. LAVRUSHIN