Финансы деньги и налоги : Inability to pay debts (UK and Maltese law)

Inability to pay debts (UK and Maltese law)

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Contents

Introduction

Cash flow test and balance sheet test

The reasons of not having a single test

The definition and treatment of the debts and liabilities under the both tests

Bibliography

Introduction

The company's inability to pay debts is the most common ground for the winding up of companies and, by definition, all-encompassing in the case of insolvent companies.

Under Maltese law section 214 (a) (ii) of Company Act 1995 states that the company may be dissolved and wound up by the court in case of the company is unable to pay its debts. The definition of this ground is to be found in sec. 214 (5) of Company Act. Based on it the inability to pay debts of the company can be proved by the way of two alternative tests: cash flow test and balance sheet test. These tests have different purposes. In simple words, cash flow test is in general about the debts which have already become due; balance sheet test is about the liabilities, e.g. contingent and prospective debts.

Before the consideration of these tests I would like to mention that even though Maltese Insolvency law is mainly based on UK Insolvency law, there are some differences between Maltese law and UK law in this question. The first difference is that under UK law the ground inability to pay debts can be applied in four scenarios, while in Maltese law there are only two of the