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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Should creditors rely on the solvency and liquidity threshold for protection? A South African case study
Author:Bradstreet, Richard S.
Year:2015
Periodical:Journal of African Law (ISSN 1464-3731)
Volume:59
Issue:1
Pages:121-149
Language:English
Geographic term:South Africa
Subjects:enterprises
commercial law
commercial credit
Link:https://doi.org/10.1017/S0021855315000017
Abstract:Many jurisdictions internationally have adopted some form of solvency-based threshold to protect creditors from opportunistic or abusive distributions being paid from corporate capital. When a legislative 'test' for distributions involves an enquiry that is too heavily based on a company's balance sheet, and thus on the integrity of the financial reporting standards underpinning its preparation, the utility of such thresholds becomes questionable on a similar basis to that on which the effectiveness of the capital maintenance doctrine has been challenged. Even the addition of a 'liquidity' threshold that shifts the emphasis away from a company's balance sheet appears to presume that a corporation's financial health can be accurately determined from its financial statements. This article explores the difficulties involved in so-called 'solvency-based' thresholds for distributions and considers other sources of creditor protection that may be more reliable. Notes, ref., sum. [Journal abstract]
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