Insolvent person (BIA definition)

A seller or target may be described as insolvent in conversation. The BIA uses the term as a legal test, and several provisions turn on it, such as the stay on filing a notice of intention (s. 69, subject to its exceptions) and preferences (s. 95). See how to buy assets from an insolvent company through a BIA process.

The three tests

• The person is for any reason unable to meet obligations as they generally become due
• The person has ceased paying current obligations in the ordinary course of business as they generally become due
• The aggregate of the person’s property is not, at a fair valuation, sufficient, or if disposed of at a fairly conducted sale under legal process would not be sufficient, to enable payment of all obligations due and accruing due

Reading it

The definition also requires that the person is not bankrupt, and that liabilities provable as claims under the Act reach the amount stated in s. 2. The Office of the Superintendent of Bankruptcy says an insolvent person with no other way to meet financial obligations may file for bankruptcy, unless they have not been discharged from a previous bankruptcy. Ask a licensed insolvency trustee whether a business meets the definition. See trustee in bankruptcy.