Examples of when to test for solvency

  • The company is about to do a dividend

  • The Director mentions a significant unexpected liability has arisen that could overwhelm the company

  • You are completing last years accounts, and notice there are more liabilities than assets

  • Your company client requests you to help put a payment arrangement for tax in place

  • You notice that your company client owes tax and when you discuss with them, they say they can't pay

  • You notice that your company client owes trade creditors and when you discuss with them, they say they can't pay on time

  • Other reasons - shareholder discounts, assistance by a company in the purchase of its own shares, redemption of shares, financial assistance for acquiring the company’s own shares

How to test solvency

  • There are two parts to testing solvency, and this is explained in the Letter of engagement:

    • Section 4 (1)(a) of the Companies Act 1993, the company is able to pay its debts as they become due in the normal course of business, and

    • Section 4 (1)(b), the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities

  • Contingent liabilities are liabilities that might arise if a certain event occurs.

  • If both parts are satisfied, then the company is solvent: generate the solvency letter and certificate for client.

  • If one or both are not satisfied, then the company may be insolvent and further work is required. Carry on with the "Further work" workpaper.


Insolvent - further work

  • Auto-generate the letter to the Director with preliminary findings. The letter can be edited directly in Aro Assistant or you can use the Copy to Clipboard function and edit in Word.

  • Once you have received all the information from the Director for review, an opinion is to be formed as to whether a return to solvency is credible. A return to solvency letter to the Director can be generated (the populated text will depend on whether the company can return to solvency), and can be edited directly in Aro Assistant or use Copy to Clipboard to paste and edit in Word.

  • Option for a Shareholders Resolution for Insolvency, which can be included in the client's annual accounts

  • Option for referring to an expert. This tool is currently under review by Paul Vlasic at Rogers Reidy.




Coming Soon