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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, taking into account 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’.