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It is interesting to note in reaching the conclusion on the company‟s solvency status,
the court referred to the company‟s paid up capital and found it was higher than the
amount claimed by the respondent, hence the company was solvent. The Court of
Appeal did not consider whether the amount of the paid up capital reflects the
current value of the company‟s assets or whether the company has the ability to pay
as and when the debt becomes due. This could probably be due to the fact that the
company had disputed the debts and no judgment was ever made in respect of the
sums. The court had in this case, applied the capital maintenance doctrine in order to
determine whether the company was solvent when the trend seems to be replacing
that doctrine with the solvency requirement.
One issue that arises from the Court of Appeal decisions in the case is whether paid
up capital is the appropriate test to decide on the company‟s solvency status. As
discussed in the previous chapter, capital maintenance doctrine does not provide
adequate protection to creditors and has slowly been replaced by the requirement to
satisfy the solvency test. 74
The solvency test is more appropriate because it relates to the company‟s current
financial position. The court‟s decision had, in fact, made the doctrine the
determinant factor of solvency, which in my view, is incorrect. The capital
maintenance doctrine indicates the amount of paid up shares contributed by
shareholders in the past. 75 It does not display the current value of the company‟s
funds which is the focus of the solvency tests. 76 The test advanced by the court could
not be regarded as the balance sheet test because of the simplistic approach,
comparing the company‟s paid up capital and the amount claimed without taking
into account the contingent and prospective liabilities of the company.
74 Ross above n5 at 66-67.
75 Ibid.
76 Ibid.
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