Tests for Insolvency - Eurosail

In BNY Corporate Trustee Services Limited V Eurosail-UK [2013] UKSC 28, the Supreme Court has clarified the meaning of the insolvency tests under Sections 123 (1)(e) and 123 (2) of the Insolvency Act 1986.

The Court rejected the formulation by the Court of Appeal which required an assessment of a company's solvency on a balance sheet basis to show that the Company was effectively beyond “the point of no return”. Instead the Court held that a company’s position should be assessed on a pragmatic and commercial assessment of assets and liabilities, including contingent and prospective. If there were sufficient uncertainties, including, for example, the relative value of currencies in the future, it may not be possible to determine insolvency on a balance sheet basis.

The Court also approved the formulation of the cash flow test in re. Cheyne Finance Plc to the effect that Section 123(1)(e) is concerned not only with debts that are immediately payable, but also with those that are payable in the reasonably near future.

For further information, contact Nigel Cook, either by telephone on 01306 502294 or by email n.cook@downslaw.co.uk