What´s Insolvency Law? Essay
A company can be wound up under the Act if it is unable to pay its debts. Sections 123 (1) and (2) of the Act provide as follows:
'(1) A company is deemed unable to pay its debts—(a) [non-compliance with a statutory demand for a debt exceeding £750 presently due] (b) to (d) [unsatisfied execution on judgment debt in terms appropriate to England and Wales, Scotland and Northern Ireland respectively] (e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.
(2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.'
Section 123 (1) (e) of the Act is referred to as the cash flow test while s. 123 (2) is the ‘balance sheet test’ . The essential difference between the two tests is the focus of the former on liabilities (including contingent and prospective liabilities) as opposed to the focus on debts for the latter. Liabilities are a much