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Definition

<p style="text-align: justify;">A test required by the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">Companies Act</span> which requires the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">directors</span> of a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">company</span> to assert that the company can meet all its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">expenses</span> out of its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">incomes</span> for the next 12 months (<span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">liquidity</span>) and that its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">assets</span> are more than its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">liabilities</span> (<span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">solvency</span>). This test must be conducted before the paying of a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">dividend</span>, a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">share buy-back</span> or a loan to a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">director</span>.</p>