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When is a company insolvent? Select the most correct statement. Select one: a. When the directors...

When is a company insolvent? Select the most correct statement. Select one: a. When the directors notice a drop in sales b. The company is unable to pay its debts as and when they become due and payable c. Cash flow test indicates insolvency d. None of these options are correct e. In accordance with CA s 95A

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Answer #1

Answer is d. None of these options are correct

A Company is said to be insolvent in following cases only

· The company commences to be wound up, comes under official management or ceases to carryon business.

· A receiver or a receiver and manager of property of the company is appointed whether by court or otherwise

· The company enters into a compromise or arrangement with its creditors.

Drop in sales does not mean company is insolvent. Ability to pay debts on time cash flow test can lead to insolvency but it does not mean company is insolvent.

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