Solvency despite poor liquidity?

Whether a company is solvent or not is not determined by assets being greater than liabilities or even a string of profits.

What is required is to look at whether the company can pay those liabilities within a reasonable time, from all of its available (and accessible) assets.

But could a company be solvent, even where currently due liabilities significantly exceed assets?

Yes!

– The company may be part of a much larger group of companies.

– The industry norm may be that trade creditors and trade debtors are typically paid well outside terms.

– The shareholders, directors or family may have a history of tipping in money, as and when needed.

– They may have just signed up to a very large new job/client.

– The liabilities may be under a payment arrangement or forbearance agreement.

There is much that needs to be considered when arriving at the conclusion of solvency or insolvency.

It’s an exciting area, with much that number crunchers and ‘Sherlock Holmes wannabes’ would love.

#SVVoidables

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