A Balancing Act: Distributions And Contingent Liabilities

The existence of contingent liabilities is a common feature of corporate accounts. Intercompany guarantees are commonplace amongst large corporate structures, long running indemnities arising out of historic transactions may have been given to third parties or successor liability from an assigned contract may affect a business. If a business is being conducted profitably, and the accounts demonstrate the ability of the company to discharge its liabilities as they fall due, is it open to directors of a company to make a distribution to shareholders if they have made a reasonable estimate of the potential liabilities faced by the relevant entity? Or is something more required?

Distributions and the solvency statement