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Periodical article | Leiden University catalogue | WorldCat |
Title: | Should creditors rely on the solvency and liquidity threshold for protection? A South African case study |
Author: | Bradstreet, Richard S. |
Year: | 2015 |
Periodical: | Journal of African Law (ISSN 1464-3731) |
Volume: | 59 |
Issue: | 1 |
Pages: | 121-149 |
Language: | English |
Geographic term: | South Africa |
Subjects: | enterprises commercial law commercial credit |
External link: | https://doi.org/10.1017/S0021855315000017 |
Abstract: | Many jurisdictions internationally have adopted some form of solvency-based threshold to protect creditors from opportunistic or abusive distributions being paid from corporate capital. When a legislative 'test' for distributions involves an enquiry that is too heavily based on a company's balance sheet, and thus on the integrity of the financial reporting standards underpinning its preparation, the utility of such thresholds becomes questionable on a similar basis to that on which the effectiveness of the capital maintenance doctrine has been challenged. Even the addition of a 'liquidity' threshold that shifts the emphasis away from a company's balance sheet appears to presume that a corporation's financial health can be accurately determined from its financial statements. This article explores the difficulties involved in so-called 'solvency-based' thresholds for distributions and considers other sources of creditor protection that may be more reliable. Notes, ref., sum. [Journal abstract] |