Solvency Opinions

Since a board of directors can be held personally liable in cases of fraudulent transfers or illegal distributions, board members often seek a solvency opinion in connection with a special dividend, spinoff or recapitalization transaction. A solvency analysis encompasses valuation and cash flow tests that determine if, after giving effect to a proposed transaction:

• The sum of the company's assets at a fair valuation exceeds its liabilities, including contingent, subordinated, unmatured, and unliquidated liabilities;
• The present fair salable value of the company's assets exceeds the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured;
• The company has sufficient capital with which to conduct its business; and
• The company has not incurred debts beyond its ability to pay such debts as they mature.

In situations where a company is making a dividend, a solvency opinion also addresses the sufficiency of surplus to effect the distribution. Delaware Corporation Law and other states' corporation laws require that dividends be paid out of surplus, which is defined as the excess of the net assets of the corporation over its capital.

Duff & Phelps has extensive experience in advising boards of directors on solvency issues related to corporate transactions.

Duff & Phelps offers solvency opinions for:

• Corporate spinoffs or split-offs
• Leveraged recapitalizations
• Leveraged buyouts
• Dividend recapitalizations