Solvency risk is the prospect that liabilities will outweigh realisable assets, or that the business cannot meet obligations as they fall due, on either a balance-sheet or a cash-flow test. For directors the assessment is consequential because the solvency position frequently determines when fiduciary duties shift towards creditors and when continued trading becomes legally fraught. This report explains how to assess solvency in your chosen jurisdiction and industry: the balance-sheet and cash-flow tests that apply, the framework for stress-testing assumptions, the warning indicators that precede a formal solvency concern, hedged ranges for the cost of acting late, the controls and reporting that keep the board sighted, and the point at which auditors, restructuring advisers and counsel should be engaged.
Reference material for informed readers, not advice.
