Legal Definition of Solvency

"Solvency" is defined in section 95A(1) as the ability to pay all debts as and when they become due and payable. A person or company which is not solvent is insolvent (s95A(2)). The courts generally take into consideration cash flows, balance sheets and the overall situation of the company when determining insolvency.  The definition of "debt" includes dividends, share buy backs, capital reductions and issuing redeemable preference shares. "Directors" are defined as those formally appointed plus de facto and shadow directors and those managing while disqualified. Note that section 588G only applies to directors and not to management.

Although solvency appears to be a simple issue it is a very complicated area of the law with many legal cases addressing the issue.  At our sister site, Restructuring Works, we have developed a simple test to help you answer the question Is my company insolvent?  If you are not sure you should do that test or CALL US NOW for CONFIDENTIAL FREE ADVICE.

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