State laws impose certain duties on boards of directors with respect to dividends, distributions and other transfers. Dividends must be paid from surplus, and cannot leave the company insolvent or with insufficient capital. A solvency analysis and opinion helps companies and their boards of directors steer clear of fraudulent transfers and illegal dividends or distributions.
A solvency opinion makes determinations as to whether, after giving effect to a transaction:
- The company’s assets exceed its debts;
- The company should be able to pay its debts as they come due;
- The company is not left with unreasonably small assets or capital; and
- There is sufficient surplus to effect a distribution.
These determinations arise from fraudulent transfer statutes and dividend prerequisites in state laws. Solvency analysis also provides a board and company management with valuable insight as to the equity and cash flow cushion with respect to its ongoing business.
Duff & Phelps is a globally recognized leader in solvency opinions. Since 2005, we have rendered over 1,000 fairness and solvency opinions for transactions with an aggregate deal value of over $2.2 trillion.
Solvency Advisory Services
A solvency analysis and opinion can enhance the company’s or board’s analysis of any leveraged transaction or contemplated distribution. The types of applicable transactions include:
- Spin-offs and split-offs
- Dividend recapitalizations
- Leveraged buyouts
- Debt refinancings
- Intercompany restructurings
- Large stock buybacks