4 Meaning of solvency test

(1)

For the purposes of this Act, a company satisfies the solvency test if—

(a)

the company is able to pay its debts as they become due in the normal course of business; and

(b)

the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.

(2)

Without limiting sections 52 and 55(3), in determining for the purposes of this Act (other than sections 221 and 222 which relate to amalgamations) whether the value of a company’s assets is greater than the value of its liabilities, including contingent liabilities, the directors—

(a)

must have regard to—

(i)

the most recent financial statements of the company that are prepared under this Act or any other enactment (if any); and

(ia)

the accounting records of the company; and

(ii)

all other circumstances that the directors know or ought to know affect, or may affect, the value of the company’s assets and the value of the company’s liabilities, including its contingent liabilities:

(b)

may rely on valuations of assets or estimates of liabilities that are reasonable in the circumstances.

(3)

Without limiting sections 221 and 222, in determining for the purposes of those sections whether the value of the amalgamated company’s assets will be greater than the value of its liabilities, including contingent liabilities, the directors of each amalgamating company—

(a)

must have regard to—

(i)

the most recent financial statements of each amalgamating company that are prepared under this Act or any other enactment (if any); and

(ia)

the accounting records of the amalgamating company; and

(ii)

all other circumstances that the directors know or ought to know would affect, or may affect, the value of the amalgamated company’s assets and the value of its liabilities, including contingent liabilities:

(b)

may rely on valuations of assets or estimates of liabilities that are reasonable in the circumstances.

(4)

In determining, for the purposes of this section, the value of a contingent liability, account may be taken of—

(a)

the likelihood of the contingency occurring; and

(b)

any claim the company is entitled to make and can reasonably expect to be met to reduce or extinguish the contingent liability.

Section 4(2)(a)(i): replaced, on 1 April 2014, by section 25(1) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).

Section 4(2)(a)(ia): inserted, on 1 April 2014, by section 25(1) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).

Section 4(3)(a)(i): replaced, on 1 April 2014, by section 25(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).

Section 4(3)(a)(ia): inserted, on 1 April 2014, by section 25(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).