Section 6: Meaning of “solvency test”

6. Meaning of “solvency test” (1) For the purposes of this Act but subject to subsection (5), a company shall satisfy the solvency test where— (a) the company is able to pay its debts as they become due in the normal course of business; and (b) the value of the company’s assets is greater than the sum of— (i) the value of its liabilities; and (ii) the company’s stated capital. (2) For the purposes of this Act, other than sections 246 and 247, in determining whether the value of a company’s assets is greater than the value of its liabilities, the Board may take into account— (a) in the case of a public company or a private company other than a small private company, the most recent financial statements of the company prepared in accordance with International Accounting Standards; (b) in the case of a small private company, the most recent financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; and C35 – 23 [Issue 4] Companies Act (c) a valuation of assets or estimates of liabilities that are reasonable in the circumstances. (3) For the purposes of sections 246 and 247, in determining whether the value of the amalgamated company’s assets is greater than the sum of the value of its liabilities and its stated capital, the directors of each amalgamating company— (a) shall have regard to— (i) financial statements that are prepared in accordance with International Accounting Standards and that are prepared as if the amalgamation had become effective; and (ii) all other circumstances that the directors know or ought to know would affect, or may affect, the value of the amalgamated company’s assets and the value of its liabilities; (b) may rely on valuations of assets or estimates of liabilities that are reasonable in the circumstances. (4) Notwithstanding subsection (1) (b) (ii), the provision relating to stated capital in connection with the solvency test shall not apply to an investment company. (5) A company incorporated or registered under the Protected Cell Companies Act shall apply the solvency test to each of its cells. [S. 6 amended by s. 4 (b) of Act 20 of 2002 w.e.f. 1 December 2001; s. 8 (a) of Act 20 of 2011 w.e.f. 16 July 2011.]