Should creditors rely on the solvency and liquidity threshold for protection? A South African case study

bibliographic database
Line

Periodical article

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
External 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]