Insolvency is a state of being unable to discharge debts when they fall due. There are two notable thresholds broadcast in the Insolvency Act 1986 (IA 1986) s 123. If a company satisfies either then it is deemed to be insolvent.
The cashflow test arises from consideration as to whether the client company is able to pay its debts when they fall due. If it cannot do so the company is insolvent. An insolvency practitioner investigating a company’s solvency may well discover this when they train their sights on a company’s books papers and records. Often in the case of an insolvent company the records can be replete with reference to solicitors threatening enforcement action court judgments and HMRC seeking payment for arrears of PAYE National Insurance contributions (NICs) VAT and corporation tax.
There is also the balance sheet test when undertaking...
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