To What Extent Does 'The Point of No Return' Impact on the Notion of Balance Sheet Insolvency
Insolvency Law Journal, 22 2: 95-102, 2014
University of Queensland TC Beirne School of Law Research Paper No. 15-52
9 Pages Posted: 2 Jun 2015
Date Written: 2014
Abstract
Australian corporate law (and Australian bankruptcy law) is grounded in English law. The Cork Report serves as the foundation for modern English corporate insolvency law and is the major influence for the current state of Australian corporate insolvency law and serving as an important reference for Australia's most significant corporate insolvency overhaul conducted in 1988. A key feature of the Australian and English bankruptcy and insolvency provisions is the notion of "insolvency". For trading companies, insolvency is a straightforward idea that presents some difficulty in anticipation, from both perspectives of regulatory enforcement and company director compliance. This article considers recent deliberations in the United Kingdom around the concept of balance sheet insolvency and the relevance of "the point of no return" in deliberations around balance sheet insolvency.
The Australian position on the notion of "insolvency" however differs from that applied in England. Reference to the balance sheet test in determining corporate solvency is not explicitly made by the Australian legislature, although the test is important in the judicial determination of the company's solvency status.
Recent developments in England nonetheless provide useful insight into the balance sheet test and may assist the Australian application of the test and possibly influence the reform agenda when insolvency law is next reviewed in Australia.
JEL Classification: K00
Suggested Citation: Suggested Citation