1. Defining insolvency terms

Insolvent Trading

A company is solvent if and only if the company is able to pay all of its debts as and when they fall due and payable: s 95A of the Corporations Act. This is a question of fact to be determined in all the circumstances, including a consideration of the nature of a company’s assets and business and commercial reality. This test of solvency incorporates a ‘cash flow test’ as opposed to a ‘balance sheet test’. In determining insolvency, the Court takes into account the financial position of a company having regard to ‘commercial reality’.