Corporate Collapse

Posted in Finance, Accounting and Economics Terms, Total Reads: 2641
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Definition: Corporate Collapse

A corporate collapse involves a financial bankruptcy or insolvency of a firm followed by legal declaration of termination of existence of the firm. However, this phenomenon is not a sudden one. It is a gradual process where the signs and symptoms develop over years.

In most of the cases, the causes are financial and one can examine the financial variables in the company financial reports to predict a corporate collapse. As these causes vary in multiple ways, multiple definitions of corporate collapse arise. It may also so happen that even after severe financial crisis, a turnaround happens. Thus it is difficult to identify from a financial perspective when a corporate collapse is imminent or a recovery is possible. Hence, it can be concluded that financial instability is a necessary but not a sufficient condition for a corporate collapse. Only after legal actions like filing by the creditors can a corporate collapse can be accurately predicted.

Examples

  1. Luxury shirt brand Herringbone’s sales fell by 23% in two months during the financial crisis of 2008 in Australia. Herringbone collapsed in December 2008.
  2. Having undertook huge debt at a time when apartment sales dried up, Raptis Group collapsed in January 2009 even after its prior recoveries from previous downturns. It collapsed under the pressure of paying its financiers.
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