Are you a director of an insolvent company?

During difficult economic conditions it is important that all directors revisit their duties as directors and are aware of how the board should deal with the situation where a company is in financial difficulty and may be insolvent.

What is insolvency?
A company is deemed to be insolvent when it cannot pay its debts as and when they fall due. 

​The test sounds simple however its application involves a range of accounting and legal issues.  When determining a company’s solvency a Court will consider the overall financial circumstances as a matter of commercial reality.  Particular emphasis will be placed on a cash flow test, however, there are also a range of balance sheet factors including the ability to realise the value of assets and raise further funds, be it equity or debt.

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