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Sections 123(1)(e) (the ‘cash-flow' test) and 123(2) of the Insolvency Act 1986 (the ‘balance sheet' test) should be seen as making little significant change in the law. The cash-flow test is concerned both with presently-due debts and with debts falling due from time to time in the ‘reasonably near' future (which will depend on all the circumstances, but especially on the nature of the company's business).
Beyond the reasonably near future any attempt to apply a cash-flow test is completely speculative, and a comparison of present assets with present and future liabilities (discounted for contingencies and deferment) (ie the ‘balance sheet' test) becomes the only sensible test. However it is far from an exact test, and the burden of proof remains on the party asserting balance-sheet insolvency.
The ‘point of no return' test (as advocated by Lord Neuberger MR in the Court of Appeal) should not pass into common usage as a paraphrase of the effect of section 123(2). The correct test is the need to satisfy the court, on the balance of probabilities, that a company had insufficient assets to be able to meet all its liabilities, including prospective and contingent liabilities.
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