Solvency

Being solvent

Solvency is the condition of being able to pay debts as and when they become due and payable. A company is solvent if it can meet its obligations on time; if it cannot, it is insolvent. Directors are generally expected to keep a close eye on the company's solvency, because trading on while insolvent can expose them to personal consequences.

• Solvency focuses on the timing of payments, not just the balance of assets versus liabilities.
• A solvency assessment often looks at cash flow forecasts and available finance.

Solvency declarations

In some procedures, such as a members' voluntary winding up, directors may be asked to form a view that the company can pay its debts within a set period and to record that view formally. Getting this wrong carries risk, so directors commonly take professional advice first. This is general information only and not legal advice. Related concepts are explained at insolvency.