Balance sheet insolvent and SLY: Difference between pages

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imported>Doug Williamson
(Create the page. Source: Linklaters commentary on BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28 http://www.linklaters.com/Insights/Supreme-Court-clarifies-balance-sheet-insolvency-test/Pages/Index.aspx)
 
imported>Doug Williamson
(Link with The Treasurer.)
 
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1.
The key short-term investment principles and prioritisation of:


In broad terms, 'balance sheet insolvent' describes the situation where an entity's liabilities exceed its assets, usually as a result of accumulated losses.


The balance sheet insolvent entity has net liabilities, and negative equity.
<b>S</b>ecurity


<b>L</b>iquidity and


Balance sheet insolvency is contrasted with 'cash flow insolvency', in which an entity does not have enough sources of liquidity to pay its immediate liabilities.
<b>Y</b>ield


A cash flow insolvent entity might well have positive net assets and positive equity, but too many of its assets are illiquid.


This ordering of the principles and considerations is fundamentally important.


2.


''UK insolvency law''.
The safety and security of the funds invested are always the first priority.


In UK law the net assets/(liabilities) position of a company may be evidence of balance sheet insolvency, but it is not necessarily conclusive.
Yield is the least important of the three considerations.


For legal purposes, balance sheet insolvency means the inability of a company - on a balance of probabilities - to meet all of its existing, prospective and contingent liabilities, taking account of future costs and of future interest obligations.


In making this assessment, future income and future asset valuations are also taken into account.


== See also ==
*[[Security]]
*[[Liquidity]]
*[[Yield]]


== See also ==
 
* [[Balance sheet]]
===Other links===
* [[Cash flow insolvent]]
[[Media:Risk and return.pdf| The Icelandic banking saga and English local authorities, UK Audit Commission, 2009]]
* [[Equity]]
[[Media:2015_06_June_-_Safety_first.pdf| Safety first, The Treasurer, 2015]]
* [[Insolvency]]
* [[Liquidity]]
* [[Solvency]]

Revision as of 19:36, 20 November 2015

The key short-term investment principles and prioritisation of:


Security

Liquidity and

Yield


This ordering of the principles and considerations is fundamentally important.


The safety and security of the funds invested are always the first priority.

Yield is the least important of the three considerations.


See also


Other links

The Icelandic banking saga and English local authorities, UK Audit Commission, 2009 Safety first, The Treasurer, 2015