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long as the accounts give true and fair view. 40 Thus, the outcome of the test would
vary depending on the accounting methods used by the company. The company‟s
balance sheet may also be of little assistance, since the value reflected in it represents
historical costs 41 .
On the question of whether valuation 42 should be a break-up or going concern, it
depends on the company‟s position at the relevant time, the court will have to decide
whether it should continue to trade or otherwise. 43 Another difficulty associated with
this test is the estimation of liabilities, particularly in relation to unquantified existing
liabilities, contingent liabilities and the expense of liquidation. 44 Just as with the
valuation of assets, the outcome of the test will vary depending on how liabilities are
appraised.
For contingent liability, the question is not only on the amount but also on the
existence of liability itself. This is because the possibility of its occurrence ranges
from nil to near certainty. 45 In this case, the court will have to assess the probability
of the occurrence of such contingency and it is difficult to do so with reasonable
accuracy. 46
40 Goode above n3 at [4-35].
41 Goode above n3 at [4-34]; Ross “Company Law Writings” above n39 at 200.
42 The New Zealand Companies Act 1993 provides guidelines in section 4(2) in which regard must be
given to the company‟s recent financial statement, directors may also consider internal and external
factors in order to determine whether necessary to make adjustment to the value of the assets and
directors may adopt the valuation they consider as reasonable depending on the circumstances; see
Ross above n3 at 87-88.
43 Goode above n3 at [4-37]; the relevant time depends on the statutory provisions and circumstances
the solvency test is required for.
44 Ibid, at [4-41].
45 Ibid.
46 Ibid.
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