Grounding Retrospective Solvency Analyses in Contemporaneous Information (3 of 3)

Michael Vitti

doi:10.5791/13-00005.1

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Article Contents

Abstract
Introduction
Introduction to the Three Financial Tests of Solvency
Solvency Test #1: Balance Sheet Test
Valuation Methodologies
Solvency Test #2: Adequate Capital Test
Solvency Test #3: Ability to Pay Debts Test
Predictions
Acknowledgments

Editorial Type:

Article Category: Research Article

Online Publication Date: 01 Oct 2014

Grounding Retrospective Solvency Analyses in Contemporaneous Information (3 of 3)

CFA

Page Range: 50 – 80

DOI: 10.5791/13-00005.1

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Abstract

Courts frequently use contemporaneous information to assess a debtor's solvency as of the date a disputed transfer was made or a disputed obligation was incurred. This is the final of three papers that provides a business valuation practitioner's perspective on how to use contemporaneous information to assess the debtor's solvency on the relevant date. This paper addresses the three financial tests (balance sheet, capital adequacy, and ability to pay debts) performed by experts retained in connection with a litigation.

Figure 1

Fear Index

Figure 2

Lehman′s Net Leverage vs. CDS Spreads

Contributor Notes

Michael Vitti is managing director of Duff & Phelps, LLC, and a business valuation practitioner who has worked on several solvency analyses, including two of the matters discussed in this paper: (1) VFB LLC v. Campbell Soup Company, and (2) financial advisor to the court-appointed examiner into Lehman Brothers’ bankruptcy filing.