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Financial Risk

How can I assess my solvency risk?

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What this risk is, and why it matters

Solvency risk is the exposure that a company cannot meet its obligations, measured either as liabilities exceeding realisable assets or as an inability to pay debts as they fall due. It matters to a board because the solvency position often acts as a legal switch: once it tips, directors' duties can pivot towards creditors and the room for ordinary commercial decision-making narrows sharply. Assessing it honestly, and early, is among the more consequential judgements a board makes.

Legal and regulatory framework

Most jurisdictions apply a balance-sheet test and a cash-flow test grounded in companies and insolvency legislation, with accounting support from IFRS or local GAAP going-concern standards. Auditors assess going concern under standards such as ISA 570. Where the company is listed or regulated, continuous-disclosure and prudential rules add obligations. The report identifies the tests genuinely applicable to your scope and is not a substitute for a formal solvency opinion.

Typical scenarios and impact

Where a solvency concern is recognised late, outcomes range from emergency refinancing on punitive terms to formal insolvency proceedings and personal exposure for directors. Asset realisations in distress commonly fall well below carrying value, and professional and legal costs mount quickly. Reputational impact with lenders, customers and suppliers can outlast the financial event, constraining terms and access to credit for an extended period afterwards.

Mitigation framework and when to engage an expert

A disciplined approach combines regular balance-sheet and cash-flow testing, stress scenarios on key assumptions, and board minutes that record the basis for going-concern judgement. The report sets out this framework and indicates when to bring in auditors for going-concern review, a restructuring or financial-risk specialist to model the position, and counsel where directors' duties or wrongful-trading exposure may be engaged. It is research to support judgement, not legal advice.

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This research is a starting point, not a verdict.

A Risk Briefing in the Financial Risk Domain tells you what the risk looks like, what the law says, and what indicators to watch. It does not replace a senior adviser who knows your jurisdiction, your industry, and your specific exposure. Senior advisors who have published on this exact question for your country appear at the bottom of this page once you have configured for a country. Download a Report for free; contact details live inside each PDF.

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Other reports in Financial Risk

Reference material for informed readers, not professional advice. Reports are produced against current, verifiable sources; material claims are referenced. Always consult a qualified adviser before acting on the contents of a report. Browse all Intelligence Reports.