When is a company truly insolvent?

Anyone working in a commercial environment will know that a company is deemed to be insolvent if it is unable to pay its debts as and when they fall due. For many companies this may be true to some extent at any time! Are they then technically insolvent? A recent Supreme Court decision looked at the interpretation of the so-called “cashflow test” and what actually constitutes insolvency. In BNY Corporate Trustee Services Ltd v Eurosail-UK, Lord Neuberger held that it would be extraordinary if a company was actually insolvent “every time [it’s] liabilities exceeded the value of its assets”. Rather, to determine insolvency there needs to be a realistic and detailed assessment of the entire financial picture of a company, taking into account commercial context and the reality of the company’s financial position.

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