A key question that most businesses have asked themselves over the past 2 years is ” is my company making money?”. The question that inevitably follows this is “is my company solvent?”. While the first question can be answered reasonably simply by reviewing the bank account from time to time and reviewing year end management accounts, the second question is quite a bit more difficult to answer.
Two tests can determine the solvency of a company, and failing either one should set the alarm bells ringing and advice should be sought from a professional.

Two tests to tell whether your company is solvent?

  1. The Balance Sheet Test 
    This is the first key test. If the company’s assets are greater than the liabilities it is deemed to be solvent. The market value of assets should be taken into account for such a test.
  2. The Cashflow Test
    The cashflow test is the second, more stringent test and is where most companies are finding difficulty over the past few years. If a company cannot pay its debts as they fall due, then it is deemed to be insolvent under Section 214 of the Companies Act 1963. Any sum over €1,269.74 which is owed is liable to be subjected to a 21 day notice from a creditor. Should this 21 day notice elapse and the debt is still not paid then the company is deemed to be insolvent. If such a letter is ever received the company should take it extremely seriously and should seek professional advice in relation to the matter.

Ask yourself these questions

Just some of the questions to ask yourself when considering if the company is solvent or insolvent are;

  • Are the suppliers supportive of the company?
  • Does the company have a good name and is the market aware of this good name?
  • Is there enough of a market position to sustain the company?
  • Are competitors competing at below cost or unsustainable prices?
  • Do the assets of the company require replacement in the near future?
  • Are the bank supportive of the business?
  • Is the market of the business sustainable?

Early corrective action will always provide the company with a better chance of survival.

If you find that your company is in need of professional advice, here at HSOC we can provide a specialised service that will be catered to your needs. We recognise that there is not a “one-size fits all” solution that suits every business, and when it becomes clear that the difficulties of the company are insurmountable we can provide clear advice and recommendations on the most effective form of winding up, including the organisation and hosting of creditors’ meetings, as well as providing advice to the directors personally.

Contact Shane O’Connell on 01-2804731 or at shane.oconnell@hsoc.ie for further information.
The opinions set out above are personal to the writer.