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Insolvency Tests
How do I know if the my
company, partnership or myself is insolvent?
Broadly, a
company, individual or partnership is insolvent if fails to meet one of the
following criteria:
 | The
Cashflow Test Example
of Cashflow Test
Company
The company is unable to pay its debts as and when they fall due.
This means that the company's cash resources are running out. Therefore, the company is not going to be able to pay its creditors on time.
Individual
You are unable to pay your debts as and when they fall due.
This means that your cash resources are running out. Therefore, you are not going to be able to pay your creditors on time.
Partnership
The partnership is unable to pay its debts as and when they fall due.
This means that the partnership's cash resources are running out. Therefore, the partnership is not going to be able to pay its creditors on time.
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The
Balance Sheet Test Example
of Balance Sheet Test
The company,
individual or partnership assets are less than its liabilities.
It should be noted that it is possible for a company or partnership to have a strong balance sheet but be unable to fund its cashflows - meaning that it is insolvent.
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Additional
factors that may be used to prove a company's insolvency
In addition,
there can be other factors that determine the company's solvency. If either of
the two circumstances listed below exists, then this allows a creditor to
petition to wind-up the company through the courts:
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If there is an outstanding statutory demand.
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If there is
an outstanding judgment.
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(Partnerships
only) If there is an outstanding debt against an individual
partner. This is extremely
important as it means that if one partner cannot pay his debts it is grounds
for deeming that the partnership cannot pay its debts.
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Conclusion
You
need to decide whether the company, partnership or individual is insolvent.
Remember - if
you have any doubts about the solvency of the company - you should take
professional advice.
Having
established the company's solvency - you need to examine what the options
available to the company are.
Once
again ..... remember......it is vital to take professional advice from a
specialist in insolvency.
Click
here to request further information
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