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Balance sheet insolvency: Difference between revisions
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“[[Balance sheet insolvency]]”, like [[cashflow insolvency]], is a variety of being “[[unable to pay its debts|unable to pay | “[[Balance sheet insolvency]]”, like [[cashflow insolvency]], is a variety of being “[[unable to pay its debts|unable to pay one’s debts]]”, an expression which in turn features in many definitions of “[[insolvency]]” or “[[bankruptcy]]”. | ||
Compared with the carefully crafted prose of other limbs, this seems a dangerously vague expression. But it has a pretty technical meaning — conferred by statute, no less — Section 123(2) of the [[Insolvency Act 1986]], which says a company will be deemed [[unable to pay its debts]] “''if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its [[contingent liability|contingent]] and prospective liabilities''”. This is what we mean by [[balance sheet insolvency]]. | Compared with the carefully crafted prose of other limbs, this seems a dangerously vague expression. But it has a pretty technical meaning — conferred by statute, no less — Section 123(2) of the [[Insolvency Act 1986]], which says a company will be deemed [[unable to pay its debts]] “''if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its [[contingent liability|contingent]] and prospective liabilities''”. This is what we mean by [[balance sheet insolvency]]. | ||