Rules for Judging a Company’s Solvency and Their Construction

The solvency of a company is a decisive factor influencing its ownership allocation, and a key indicator for reconciling the conflict of interests between its shareholders and creditors. However, China’s Company Law and Enterprise Bankruptcy Law do not follow the same rules in judging solvency. Although the Company Law provides constraints for various distributions for shareholders, these constraints are not based on solvency tests. The Enterprise Bankruptcy Law has established two solvency tests, namely, the balance sheet test and the equity solvency test, but they cannot be applied to distribution disputes of shareholders. The disconnection between the Company Law and the Enterprise Bankruptcy Law in judging solvency should be rectified. Therefore, it is necessary to introduce the solvency tests of the Enterprise Bankruptcy Law into the Company law, and build a distribution regulation model that takes into account the company’s ability to continue as a going concern and its solvency, and combines the capital maintenance rules and the equity solvency test.