A bankruptcy is triggered when a company can no longer meet its short-term commitments and thus faces a liquidity crisis. Bankruptcy happens because a company does not make enough profits, and not because of significant debts. Nevertheless, the exact definition of Financial distress leading to filing for bankruptcy differs from one jurisdiction to another.

(See Chapter 46 Mergers and Demergers of the Vernimmen)

To know more about it, look at what we have already written on this subject