Business Planning

Insolvent


There are two tests for insolvency:

  • The balance sheet test says a business will be insolvent if all its liabilities will become greater than all its assets.
  • The cash flow test says a business will be insolvent if it will not be able to pay its debts as they become due in the usual course of business.

MBCA § 6.40(c).

A company cannot distribute a dividend if it will make it insolvent.