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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

13 JUN 2011

Insolvent: some definitions

Building on our last post on bankruptcy definitions I thought it might be useful to include some definitions of the term insolvent in this jurisdiction and elsewhere.

England and Scotland

"A person is deemed to be insolvent within the meaning of this Act if he has either ceased to pay his debts in the ordinary course of business, or he cannot pay his debts as they become due. (Sale of Goods Act 1979, s 61(4) (as amended by the Insolvency Act 1985, s 235, Sch 10, Part III, and the Bankruptcy (Scotland) Act 1985, s 75(2), Sch 8)

"'I admit that a man is not insolvent, because he postpones the payment of a demand for a week or ten days, during which the creditor consents to wait, or renews a bill; and yet these are indications of a want of present power to fulfil his engagements. These, however, are cases to be decided by a jury upon the whole matter. My understanding of insolvency is a man's not being in a condition to pay 20s [now 100 pence] in the pound, in satisfaction of all demands.'" Teale v Younge (1825) M'Cle & Yo 497 at 506, per Garrow B

"The ordinary import of the word insolvency is an incapability of paying the party's just debts.'" Parker v Gossage (1835) 2 Cr M & R 617 at 620, per Parke B

"[By a marriage settlement real property was vested in trustees upon trust for the wife for life, and after her death to pay the rents to the husband, until he should be bankrupt or 'insolvent', with a gift over to the children.] 'The settlement here creates a series of vested estates, the interest of the children taking effect in remainder upon the bankruptcy or insolvency of their father. On his becoming bankrupt in the lifetime of his wife, his interest in remainder, unless it went over, would have passed to his assignees, and the intention of the gift over was to preserve the property to the children in the event in which it would otherwise pass to the assignees. Neither can there be any question that what took place was an insolvency within the meaning of the settlement. The word insolvent has no technical meaning in such cases, but simply means incapable of paying debts that are due…. It is impossible to say that there was not an insolvency in this case, although no doubt a mere request for time, or a compromise of disputed claims, would not amount to an insolvency.' Re Muggeridge's Trusts (1860) John 625 at 627, per Page Wood V-C

'I cannot help thinking it quite clear that the term “insolvent” means public insolvency; not necessarily the taking the benefit of, or being made liable to, the Insolvent Act, but being incapable to pay his debts in ordinary course; or, in other words, having “stopped payment”…. It may at least mean “not paying” as well as “being incapable of paying”.' R v Saddlers' Co (1863) 10 HL Cas 404 at 463, per Lord Wensleydale

'There are decisions as to the meaning of the word “insolvent”. They all state that “insolvency” means commercial insolvency, that is to say, inability to pay debts as they become due.' London & Counties Assets Co Ltd v Brighton Grand Concert Hall & Picture Palace Ltd [1915] 2 KB 493 at 501, 503, per Buckley LJ

Australia

'“Insolvent” is a word that has no technical meaning in the law of England; it simply means “unable to pay debts”. In this State [South Australia], in consequence of the laws for the relief of insolvent debtors using the term insolvent where in England the term “bankrupt” is used, the word has, in my opinion acquired, in addition to its primary meaning, as above, the technical meaning of subject to legal process under those laws…. So well established has this meaning become in popular usage in this State that if anyone were told that a certain individual—I am not speaking of companies, which are not subject to the Insolvent Acts—had “become insolvent”, he would, I believe, understand by that expression not that he was merely unable to pay his debts, but that he had become subject to the process of the Court of Insolvency.' Re Salom, Salom v Salom [1924] SASR 93 at 95, 97, per Murray CJ

Canada

'The question … is, was the debtor “in insolvent circumstances” or “unable to pay his debts in full” when he executed the mortgage in question? The authorities shew that these two phrases denote the same financial condition…. Various tests of insolvency have been from time to time formulated and applied, but the one which has been received with most favour in this province is that given by Vice-Chancellor Spragge in Davidson v Douglas [(1868) 15 Gr 347 at 351]. He there says that in considering the question of the solvency or insolvency of a debtor the proper course is “to see and examine whether all his property, real and personal, be sufficient if presently realised for the payment of his debts, and in this view we must estimate his land, as well as his chattel property, not at what his neighbours or others may consider to be its value, but at what it would bring in the market at a forced sale; or at a sale when the seller cannot await his opportunities, but must sell”…. The Spragge test seems to me the proper one as applied at least to a non-trader.' Trotter v Pedlar [1921] 1 WWR 233 at 235–236, per Mathers CJKB

 

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