Scribd
Upload
16 views1 page

8.1. Notes - Eduvos

The Companies Act, 2008 mandates a solvency and liquidity test that must be passed before certain corporate actions, such as declaring dividends or buying back shares. A company is deemed to satisfy this test if its assets equal or exceed its liabilities and it can pay its debts as they become due within the next 12 months. This test is specifically required in various scenarios, including providing financial assistance for securities and granting loans to directors.

Uploaded by

amorleroux64
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
16 views1 page

8.1. Notes - Eduvos

The Companies Act, 2008 mandates a solvency and liquidity test that must be passed before certain corporate actions, such as declaring dividends or buying back shares. A company is deemed to satisfy this test if its assets equal or exceed its liabilities and it can pay its debts as they become due within the next 12 months. This test is specifically required in various scenarios, including providing financial assistance for securities and granting loans to directors.

Uploaded by

amorleroux64
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

2.

Capital Regulation in the Companies Act, 2008

The Companies Act, 2008 introduced the solvency and liquidity test which must be must be applied and passed before
certain transactions take place, such as declare dividends, or buy back shares.

The solvency and liquidity test must be applied when: a company wishes to provide financial assistance for the
subscription of its securities in terms of section 44. If a company grants loans or other financial assistance to directors and
others as contemplated in section 45; before a company makes any distribution as provided for in section 46; if a company
wishes to pay cash in lieu of issuing capitalisation shares in terms of section 47; and if a company wishes to acquire its own
shares as provided for in section 48.

A company will satisfy the test if it is both ‘solvent’ and ‘liquid’.

The solvency and liquidity test: In terms of section 4 of Companies Act, 2008 a company satisfies the solvency and liquidity
test at a particular time if, considering all reasonably foreseeable financial circumstances of the company at the time, the
assets of the company, as fairly valued, equal or exceed the liabilities of the company, as fairly valued; (this is the solvency
portion of the test) and it appears that the company will be able to pay its debts as they become due on the ordinary course
of business for a period of 12 months after the date on which the test is considered; or in the case of a distribution
contemplated in paragraph (a) of the definition of ‘distribution’ in section 1, 12 months following that distribution (this is the
liquidity portion of the test).

2.1. Examples

The solvency and liquidity test must be applied in each of the following circumstances:
1. When a company wants to provide financial assistance for subscription of its securities.
2. If a company grants loans or other financial assistance to directors.
3. Before a company makes any distribution, such as dividends.
4. When a company wants to pay cash in lieu of issuing capitalisation shares.
5. If a company wishes to acquire its own shares.

https://mylms.vossie.net/mod/book/tool/print/index.php?id=819449 2025/02/17, 15 38
Page 3 of 3
:

You might also like