Tests of insolvency (s.123 IA 1986)

A company runs a successful manufacturing business. Its balance sheet shows assets of £4 million and liabilities of £3.2 million, so it is comfortably solvent on a net-asset basis. However, the company has lost a key supplier credit line and is currently unable to pay several trade invoices as they fall due. Three suppliers have served statutory demands for sums each exceeding £5,000, and one of those demands, served three weeks ago, remains unsatisfied. The board is concerned that a creditor may petition to wind the company up. A director asks the company's solicitor whether the company can be regarded as unable to pay its debts at the present time, given that the company's assets exceed its liabilities.